Life Storage Inc (LSI) 2013 Q3 法說會逐字稿

Greetings. And welcome to the Sovran Self Storage third quarter 2013 earnings release conference call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Diane Piegza, Vice President, Corporate Communications. Thank you. Ms. Piegza, you may now begin.

Thank you, Rob, and good morning. Welcome to our third quarter 2013 conference call. Leading today's call will be David Rogers, Chief Executive Officer. Also participating are Andy Gregoire, Chief Financial Officer; Ed Killeen, Executive Vice President of Real Estate Management; and Paul Powell, Executive Vice President of Real Estate Investment. Each of you should have received a copy of our earnings release last evening. If you did not, and you wish to be added to our distribution list, please email invest@sovranss.com.

As a reminder, the following discussion and answers to your questions contain 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. Copies of these filings may be obtained by contacting the Company or the SEC. At this time, I'd turn the call over to Dave Rogers.

Thanks, Diane. Good morning everyone and welcome to our call. Concerning 3Q results, occupancy remains high, rental rates are increasing, incentives are decreasing, and costs are in line. Andy will provide the details but the Cliffs Notes version is, we had a really solid quarter. As we've all been noticing, the acquisition market has come to a rolling boil, with just a plethora of deals hitting the market. The recent low cap rate environment has enticed a new group of owners to list their properties, or at least entertain discussions to sell them and we anticipate heightened activity into 2014.

During the quarter, we acquired three Class A properties, two on Long Island and one in Colorado, for a total cost of $28 million. Last Friday, we entered into an agreement to lease and operate four Class AAA properties in Connecticut and Long Island, formally known as Westy Self Storage. As mentioned in the related press release, the lease runs for 15 years, but we do have an option window to purchase outright all four properties in 2014 -- or 2015 or 2016. We're very happy to add these high-end stores to our growing tri-state presence and we expect them to add a good $0.04 to FFO in 2014.

As of this morning, we have three other properties totalling about $24 million under contract. One in Toms River, New Jersey; one in Palm Beach, Florida; and a third in Austin, Texas. All are in various stages of due diligence and none can be assured of closing, but if they pass the test, they'll be fourth quarter deals. We're looking at a good many other prospects in both portfolio and one-off form, and expect to have a busy start to next year.

The overall picture of our sector is pretty much unchanged from the prior four or five quarters. The macro situation is very healthy. The growth in new supply remains muted; demand is still picking up and customer awareness continues to grow.

With regard to our Company specifically, we benefit greatly from size and scale, and with almost 500 stores flying the Uncle Bob's banner, we have the ability to continually invest in the platforms most critical to running our business, namely a broad-based/specifically-targeted web marketing program, a state-of-the-art customer care center, a data-driven, predictive revenue management system, and a sophisticated employee training process. These and other platforms and initiatives give us a terrific advantage over most of the industry, and I think it set us up for great growth in the quarters and year to come. And with that, I'll let Andy give us specifics of our quarter.

Thanks, Dave. Regarding operations, same store revenues were strong, increasing 7.3% over those of the third quarter of 2012. The 7.3% increase was on top of the 8% increase we experienced in the same quarter of last year. The growth was a result of the 250 basis point increase in average occupancy, and a 3.6% increase in rates, as we saw pricing power continue to show in the rents collected. Same store occupancy at September 30 was 90.1%. We also saw a 24% increase in incentive insurance commissions in the third quarter of 2013 compared to the 2012.

Total property operating expenses on a same store basis increased by a modest 3%, as a result of an expected increase in real estate taxes and insurance. Partially offsetting these increases was a continued decrease in Yellow Page spending and lower utility costs. As a result of the continued strong revenue gains and controlled expenses, same store net operating income increased a very solid 9.3%. This was our fifth consecutive quarter with same store NOI increases of 9% or more.

G&A costs were $800,000 higher this quarter over that of the previous year. Aside from the $200,000 increase in Internet advertising, the main reasons for the increase are the fact that we operated 23 more stores at the end of this quarter as compared to July of 2012, our continued investment in revenue management and the incentive compensation. Offsetting a portion of the overhead cost is an increase of approximately $200,000 in third-party management fees earned this quarter.

Regarding properties, Dave had mentioned the three stores we purchased during the quarter for $28 million, and the now three stores we have under contract for $24 million as of this morning. On the disposition front, we didn't sell any properties during the quarter but in October, we sold our only property in Dayton, Ohio, for $3.2 million, resulting in a gain of approximately $300,000. We may look to prune a few more properties in 2013 and 2014.

From a balance sheet perspective, in September we borrowed $100 million on our delayed draw term loan to pay off our maturing $100 million term loans. This draw was contemplated in our $500 million bank term loan and line of credit refinancing completed in June. As previously disclosed, the interest savings from this refinancing will reduce our interest cost by an annualized $4.1 million. The refinancing also extends our maturity of our line of credit to June of 2018, and our bank term notes to June 2020.

We also issued almost 445,000 common shares under our ATM during the quarter, resulting in net proceeds of $31.6 million. We used the proceeds to purchase the three properties in the quarter, and to reduce the balance on our line of credit. At September 30, we had $9.7 million of cash on hand, and $201 million available on our line of credit, including its accordion feature.

With regard to guidance, we have included in our release the expected ranges of revenues and expenses for the fourth quarter and the entire year. Same store revenue for Q4 should be in the 7% to 8% range and NOI growth around 8% to 9%. Property taxes for the quarter are expected to increase between 8% and 9% as a result of the tough comparable for the fourth quarter of 2012, which saw a benefit from previous over-accruals. We are forecasting full-year property taxes to increase between 4.5% to 5.5%. For the year, we have increased our same store revenue estimate to between 7.5% to 8.5%, and increased our NOI growth to 9% to 10%.

Core G&A are projected at $36 million for 2013, including $5 million of Internet advertising. We have not assumed any additional purchases or sales of properties in our guidance, nor have we included the related acquisition costs incurred to date or that could occur in the future. Our guidance assumes a weighted average diluted share count of 32 million common shares for the remainder of 2013.

Although not included in guidance, we do expect a $1.7 million of fourth quarter acquisition costs connected with the Westy lease transaction completed in November, and the three properties we have under purchase contract. As a result of the above assumptions, we are increasing guidance and are forecasting funds from operations for the full-year 2013 at between $3.77 and $3.79 per share, and between $0.98 and $1 per share for the fourth quarter of 2013. And Rob, with that, we'll open the call for questions.

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions)

One moment please while we poll for questions. Thank you. David Toti, Cantor Fitzgerald.

Dave, I have a question for you. I just want to go back to some of the comments you made. I think everybody has been noticing the heated acquisition market, the heavy volumes. How do you think about 2014 relative to what's arguably a compressed cap rate environment versus the expectations to sort of pick up acquisition activity again? Are you guys basically underwriting lower cap rates with stronger forward growth? How do you think about the spend in this environment of over-active transactions?

Well, we've been involved -- there's been a lot of activity and we've been pretty involved in all of it, and the cap rates have compressed considerably. We've been looking, though, as we always have been, not so much at the going in cap rate as to what we can do with the properties going forward and we want to see opportunity. So if it means paying a 4 cap today on a 70% occupied property, and we like the way it's built and located, and how it fits in with our footprint, we'll go for it, and with the expectation that we're going to be there at 150, 200 basis points a year clicking up, so that by the end of year three we might at a 7.5%, 8%. So it isn't so much the going in cap rates.

Now, having said that, we looked at the big ones and we just didn't see the upside that we needed on those to justify a 5% cap, or a 5.25% cap. First of all, when you have a portfolio, they're usually run pretty well. Not to say that the REIT's platforms can't help, but there is a limit on -- because some of those that were bought this year were quite well run. So I think, David, to try to shorten it a little bit, it's more of the opportunity we see than it is the yield going in.

Okay, that's helpful. The other question I wanted to ask was we don't hear much about seasonality these days and if based on the performance, it seems like it's more muted. Do think seasonality is more muted in this environment of higher occupancy and stronger demand?

I do. I also think different markets have different seasonality, too. And as you nationalize the portfolio, it spreads that around a little bit. But I think, yes, I think with occupancy being higher and length of stay being a bit longer, as that grows, your quality of customer comes in and stays longer, that all mutes the seasonality quite a bit.

Okay. I'll hop back in the queue. Thanks for the detail.

Christy McElroy, Citigroup.

Sorry if missed these numbers in the opening remarks. I just wanted to get a little bit more color on what you did in Q3 in regards to pricing. You've been making good progress on realized rent growth, so I just wanted to get a sense for how street rents have changed year-over-year, if you're still reducing discounts. And then also the extent to which you're pushing existing customer rents today.

Hey, Christy, it's Ed. Looking at our asking rates, end July year-over-year, we were running at plus 8%; August, a little bit off that; and September, 7%. So quarter over quarter, we were at plus 1.7% in asking rates. And while we expect that delta to shrink a bit, we still think there's room with asking rates heading into the fourth quarter.

With in-place, we were very aggressive this quarter. As a matter of fact, it was probably our most aggressive quarter -- or it was our most aggressive quarter with in-place over the last several quarters. 9.6% of our customer base received increases versus 4.6% last quarter and 7.3% year over year. Our move-out rate was a bit higher, from 11.8% to 13%. But frankly, that is by design, looking at the quality of the customer and the retention rate. And our average rent increase was 9.5% versus 8.2% last quarter and 9.4% third quarter year over year.

So we're real strong with those two components, both asking and in-place. And even with concessions, our concessions were down 45%; demand continues to be high. We continue to be able to suppress those concessions quite a bit; 40% of our customers received concessions versus 48% last quarter and 56% year over year. So even going into our low season, given where we're at with occupancy, we think we will see concessions reduce over at least the next quarter and we'll see what happens heading into next year.

With regard to your comment on the street rents delta shrinking going forward. Your move-ins were down about 6% year over year. Do you think that's more a function of the normalization of that move-in piece? So are you comfortable with that level? Or to your comment, do you think you pushed street a little too much?

We don't think we pushed street a little too much. We're actually quite comfortable with move-in being down 5.9%. Again, you can almost look at that as by design. Last year, the play that we were making involved the two primary components, being concession management and balancing that with rates. And we -- beginning in 2012, we were at $2.2 million in concessions and we dropped that to $770,000 this quarter, I think.

So we're actually happy with those ins; and again, it's sort of by design, customers respond to concessions and low rates, and it is important that we keep that quality customer. Our customers that have been with us for over a year have gone from 53%, this is end September, I think, 53.8% to 56.5%. So those customers are paying at the higher rate. So we're good with how we're balancing things and the fact that our ins are down just a bit.

We're trying to reduce the churn a little bit, I think, and it's working. The levers that we're pulling with regard to incentives and so forth are resulting in customers staying -- customers not shopping the deal as much as really needing storage and willing to pay the long-term rate.

Okay. And then just with regard to the additions to your property management platform recently, can you talk about sort of overall your efforts to market your management services? How proactive are you being to add properties to the platform? And how do see that growing in coming years?

Hi Christy, this is Paul. We, our team, our Uncle Bob's management team, is out on the road pretty frequently. They attend all the state association shows and the national shows. They're doing a lot of cold calling.

As we've said in the past, we're very selective on who bring in to our management, just because we're looking for these to be acquisition opportunities down the road. So currently, we have 23 properties under third party. And then recently, we've just contracted with two developments that should open up pretty soon where we'll take over management, [see] above.

We're seeing a lot of inquiries regarding that type of management whereby a developer or an owner opens up a property and is looking for management, day one. So that seems to have been ticking up quite a bit recently; that's the majority of our traffic through the trade shows that we attend. So we think there's going to be a lot more of that as development comes online.

So we're still fairly aggressive. Again, our team is on the road constantly and we think there will be some good opportunity going to the 2014.

Is there a difference in the management fee structure on the newly developed properties versus the stabilized assets that you take under management?

Not really. We do have a minimum that we require. That is negotiable depending on if it's a -- is it portfolio or if it's just one property. But typically, we require the 6% management fee and pass through some of the expenses that -- for our call center, for our Internet presence and so forth. So that's pretty much standard. There is some negotiation here and there, but it's -- that's de minimis.

I do think, though, what you might be asking Christy, is on the lease-up ones from zero to stabilization, we do get a minimum fee of $2,500 or so a month, $2,500 a month, so it's a -- 6% on no dollars is a pretty rough way to operate a management company. So we do get the minimum till the property is stabilized.

Great. Thanks, guys.

Jana Galan, Bank of America Merrill Lynch.

I was wanting to follow up on the Westy Self Storage transaction and why choosing that structure of a triple net lease versus buying the properties outright. And then maybe if you can give us kind of an estimated range of where you think the cap rates -- what the cap rates would look like with your management in 2015 or 2016.

Yes, Jana, this is Paul again. Yes, that's -- it's a triple net lease that we signed up just a few days ago. It -- our option period opens up in February 2015. We expect the NOI year one going into 2014 to be somewhere between $7 million to $725,000. Based on the $120 million option price, that cap rate should be north of 6%, probably the low 6% range, and then we expect that to grow 50 to 100 basis points out the next two years or so. So we feel like it's a very, very good opportunity for us.

The net structure was driven by the tax situation of the owner at the time, Jana.

Okay, thank you. And then, given the heightened activity and your pipeline probably being larger than you've seen in a while, how are you thinking about funding future deals?

Well, I think, Jana -- this is Andy. We're going to continue to be aggressive with the ATM and match fund those acquisitions. We're keeping our balance sheet very nimble. Keep it -- pay down that line of credit when we can. Make sure we have the ability to take on those big acquisitions as they come along. We wouldn't fund a large acquisition, a $100-plus-million, with an ATM. We'd do a traditional offering. But right now, we're just going to be nimble and take these one-off deals and fund them with the ATM -- match-fund them with the ATM and borrowings on the line of credit.

We've got a lot of total capacity on the line, Jana, of $0.25 billion, drawn $49 million at the end of the quarter. So there's quite a bit of capacity on the line. I think our leverage ratio is basically doing what Andy said, keeping us nimble, flexible and with a lot of firepower at hand.

And the ATM has $90 million still on the current ATM program.

Okay. Thank you, Andy. Thanks, Dave.

Brandon Cheatham, SunTrust.

When you think about the in-place rents that you were able to push this quarter, I guess on a forward-looking basis, near what percent of the occupancy that you currently hold that you would feel comfortable pushing that forward? Should we expect to see similar ability to increase this in-place rent?

Well, 9.6% is pretty strong right now as a percentage of our customer base receiving increases. I would say that during the low season, you're going to see us push down that number quite a bit. It's just heading into the low season overall, it's -- sometimes it's not worth the risk for a potential move-out for those customers that may sort of fall into that gray area and we are not 100% sure that they can be backfilled. So if they are paying near the asking rate, we're not going to get too pushy with the in-place increases.

We will, however, see that the rent increase average will sit between 8.5% and 9.5%. So those that do receive increases will receive hefty increases.

Okay. And then on the property taxes, you -- the comp you expect to experience in the fourth quarter, is there anything like that going into next year? Or should that level out at -- I think you have about 4.5%, 5%?

Hi Brandon, this is Andy. It should level out next year. If we hit budget in the, in what we expect in the fourth quarter, next year should be very level throughout the year. Again, last year we had a little benefit come in the fourth quarter. So the comparable looks odd but the 3Q to 4Q, you won't see a bump, a big bump in property taxes, but year-over-year you will.

But next year, if we hit budget if it comes -- if the rents for Florida and Texas come in as we think they will it should be pretty smooth next year.

Okay.

And again, it would be 4.5% to 5%.

Okay. Just on the acquisitions you guys are looking at now, can you give us kind of a sense on the cap rate on those?

On the cap rates on what we bought in the third quarter range from about 5% to 7%. So the Long Island deals, those were just coming out of lease-up so our going-in cap rates for the two Long Island were around 5%, and then the Colorado deal was a low 7% cap. So we expect those again to grow 50 to 100 basis points over the next 12 to 16 months.

I think going forward though Brandon, it's -- as we've always done, if you're looking at deals that are in lease-up stage, 50%, 60%, 70% occupied, you're going to be talking a very, very low cap rate with opportunity to come. If you're talking stabilized, mature in a very high-end market, you're going to be looking at a 5%, 5.5% maybe for Class A property.

And then it depends on the deal, it depends on the opportunity, it depends on the market. So it's going to be a pretty wide range, I think, and the idea is to underwrite it with all those factors under consideration.

Okay. So generally, in your markets now you're seeing about 5%, 5.5% for something that's Class A stabilized?

That's -- usually we feel like there's still some runway left on those deals at that cap rate. Typically, we like -- we're targeting 6% to 7% cap for stabilized assets in core markets or some of the bigger MSAs. We're actually seeing some low 7% caps in some secondary markets that we're looking at. But yes, I think the low 6%s and then some more opportunistic will be sub-6% going into 2014.

All right, thanks. I appreciate it.

RJ Milligan, Raymond James.

So with occupancy now in the 90%s, and looking at Public Storage running their portfolio, at least over the past two quarters, closer to 95%, just curious what your thoughts are in terms of where you think you can bring peak occupancy within the portfolio, where you want to bring it, and how long do you think it will take to get there?

Hi RJ, it's Andy. We're looking at probably 93%, 93.5% next year; 95% is probably a little too high. Probably not taking advantage of pushing rates and reducing concessions at 95%. Turning away too many customers at 90%. At 95%, we'd be turning away a lot more than we'd want to turn away.

So we want to be more aggressive rate-wise; and 93%, 93.5% is probably where we would max out. And we hope to get there summer of next season.

Okay.

RJ, we're always concerned about the store occupancy or the overall portfolio occupancy. But really, every -- each store has its own particular balance at any time, between the asking rates and the occupancy and the concessions and that's on a very micro level.

So it all washes out and produces results at the end of the quarter, but we don't -- we would love to get to 94%. But if it doesn't make sense, that's not where we're going.

Okay, and just curious. We haven't heard of a lot of new supply coming into the markets. Just curious what you're seeing. Obviously, there's a lot of talk about people wanting to develop but as some of the peers have said, we haven't seen a whole lot go into the ground, and just curious, in your specific markets, if you're seeing anything, hearing anything? Anything that's concerning with you on the supply side?

Good morning, RJ. This is Paul. Yes, there is certainly a lot of talk throughout the industry of new construction. Again, as I mentioned earlier, at the trade shows that we attend, the majority of the traffic is people coming up, talking about new development. They're mostly secondary markets. I think where you'll see the new supply are some of the bigger MSAs or core markets. I think that will not be an issue though until mid-2015.

In our markets, based on our research, we've got about 31 properties in the immediate trade area that are coming out of ground. And in the market in general, there's another 26. So we're tracking about 57 properties that would compete with us possibly over the next two or three years. So again, that's very small compared to historical development pipeline that -- in the early 2000s.

So we're still not that concerned, although I think if the economy continues to improve and interest rates stay low, I think certainly a lot of this talk will turn into development; but we're just not that concerned at the moment.

That's very helpful. Thanks, guys.

Ross Nussbaum, UBS.

I was hoping you can clear up some confusion for me. So I look at your realized rent growth of 3.6% this quarter; I look at what it was in the second quarter and it was -- I think it was right around the same level. Yet you talked about asking rents being up, I think it was 1.7% sequentially from Q2 and now running up 8% year over year. Concessions are down. You're pushing existing customer rents more.

So I guess I'm confused as to why all of that didn't result in a more meaningful pick-up in realized rent growth in the third quarter.

Hi Ross, this is Andy. I think the biggest factor is that concession pullback. This was a tough comparable this quarter concession-wise, pullback. We had like a $600,000 reduction in total concessions. That was over $1 million last quarter; it was a couple million dollars the quarter before that -- I'm sorry, over $1 million quarter before that.

So that's the piece where you dropped off, like that concession savings reduced by about a $0.5 million. But that was the biggest driver of that number and why it might have surprised you.

So as I look ahead here given where your asking rents are, given what you're doing on in-place, if you didn't change those numbers over the next few quarters, should we all expect that that realized rent growth should continue to accelerate higher?

Yes, we would think that would continue to accelerate. We still have a couple more quarters in concessions about probably equal to what we did this quarter, reduction. We think we have two of those left. And the other drivers of rate will begin to show up and you should see that 3.6% creep up.

Okay. Does it creep up to -- when we're having this conversation a year from now are we talking, does that number creep up to 5%? It is not going to get to the 8% that you're getting on asking rents, right?

Correct. Somewhere in the 4.5%, 5%.

That's helpful. Okay. Second question is you guys have about 25% of your properties that are not in the same-store pool. Can you give us a sense for how much the NOI has increased on those, at least for the ones that you've owned for about a year, on a percentage basis --?

Those stores, they are about 80% occupied. The group we bought in 2012 that is not in the same-store pool was about 80% occupied, so there's a lot of room to grow those stores yet.

How much have they grown? In 2013, I think we've grown from 70% to 80%. So they have -- we figure another 10% to go on the 2012 acquisition.

Now, there's 55 stores that (inaudible) in the JV pool that we don't report in our Company's name, and those have done on balance as well, perhaps a shade better, depending on the quarter. But on balance, about the same as ours over the last six or seven quarters. So that's 55 stores, Ross, in that, the two JVs that are tracking our core. And then as Andy said, the new stuff is a little more opportunistic than the mature portfolio we report on.

Yes, appreciate it. Thank you.

Todd Thomas, KeyBanc Capital Markets.

Just a couple of follow-ups I guess on the Westy, the deal structure. Is that something that you're discussing with other sellers, something that you'd be interested in doing more of?

Hi Todd, this is Paul. No, this was a unique opportunity. We built a relationship with one of the owners of the Westy portfolio. And based on some tax issues on his side, we wanted to tie this up; we didn't want to wait for his tax issue to work itself out. So we suggested the lease scenario which worked for him; it's a triple net lease.

I mean, it's certainly an opportunity we can -- or a structure we could bring up going forward, but we don't -- we're not in any current discussions with any other sellers at this point.

Okay. And then Andy, can you just explain how this will flow through the P&L? Is it simply you're going to collect all the operating income and expenses and then just kind of a $6 million new line for lease payment, lease rent -- or rent expense?

That is correct, Todd. So we're going to -- we operate them as Uncle Bob's. We take all the revenue, pay all the expenses, the 6%. There would be $6 million lease payment.

It is a little unusual for GAAP purposes; because it has escalators in it we have to straightline that rent. So a GAAP expense, we're going to have to show some $8 million a year. Actually, we'll -- from a GAAP point of view, will show -- be dilutive. But we'll have a straightline rent adjustment to add back that $2 million of extra expense that we have to report for GAAP, because on a cash basis, it will only be $6 million of rent expense.

Okay, so year one, your expectation is that it will be a positive cash flow of about a $1.2 million, if I heard you right.

Correct.

All right, that's helpful. And then I may have missed it, but did you give an update on where occupancy was at the end of October?

At the end of October, we were at 89.7%.

And where does that stand year over year?

It was 87.9% the end of October, so pretty typical seasonality.

Okay. And then just lastly, you talked about culling the portfolio a bit more in terms of selling some properties. I was just wondering what we might expect in terms of the magnitude of these sales over the next 12 months or so. How much are you looking to dispose of?

Todd, this is Paul. We've got a couple other properties that we're discussing with potential buyers. But at that point, that's all we have. We do on an annual basis review our portfolio, and there could be other opportunities or other disposition candidates going into 2014 but there's nothing at this point.

And those three, Todd, will probably be less than $10 million, total sales price for those three.

Right.

Got you. Okay, great. Thank you.

Paul Adornato, BMO Capital Markets.

I guess over time, it seems like you guys have been able to move into higher demographic regions and I was wondering if you have any evidence or how you track the demographics of your customers.

It wasn't what I expected. Yes, the demographic of our customer is really tough. It's not like you can do in the apartment game where you get credit ratings and financial histories and so forth from your tenants. Ours is show a credit card and proof of who you are and you're in. So it's a little tough.

So we have to rely pretty much on these studies done by the industry. There's a recent one that just came out by the Self Storage Association. Pretty well done, actually. It had a large sample and it was very, I think, statistically valid. And they essentially come back and say that the typical customer is, well, I think this time around it was 54% of self storage customers, not business, but residential customers -- 54% of those both had household income of less than $50,000.

So when you say that the income demographics are -- certainly population demographics are important. Income demographics we're not so convinced of at all. Certainly, you're going to see it in Alexandria, Virginia, for example or right in Boston, Mass. You're going to be able charge higher rents because it's a higher rent neighborhood.

But the fact that you've got people in a typical storage facility, the income factor, the income component of the demographic study we do is way down on the scale in terms of importance.

I think way more important, I think, is the number of households in the five-mile-plus radius, as these -- a lot of people measure three-mile. Our studies show that much of our traffic has nothing to do with three-mile radius. It's from points farther than that. So we look pretty much at the five-mile radius in terms of density but income is not a big factor.

That's interesting. And maybe a related question is, as you think about branding and Uncle Bob's image, have you done any focus groups or kind of understand the presence of Uncle Bob in the market? And maybe another way to say it is, is Uncle Bob kind of the right guy to lead you to the next level?

Hey Paul, it's Ed. We like Uncle Bob. We think he is the right guy. Our studies are certainly not scientific. We get a lot of feedback from our area managers who get feedback from our managers who are hearing directly from our customers. And while that name, Uncle Bob's, might not necessarily work on Wall Street, it really works on Main Street with our everyday customer; it's very folksy. And it's -- everybody likes their uncle -- usually, they like their uncle.

And Uncle Bob really plays well with our customer. They feel safe being with Uncle Bob, and storing with Uncle Bob. The name really does play well and we think we'll keep it.

Okay, great. Thanks very much.

Paula Poskon, Robert W Baird.

Dave, I apologize but I missed your introductory remarks when you were talking about the transaction environment. What do you think is bringing more sellers to market?

The low cap rates for sure. It's just that. The talk at the conventions and with brokers -- and it's an opportunity. I think we're seeing people who had no interest at all in giving up on the business or selling, certainly not two years ago or three years ago when we were just coming out of operators having a rough go of it. But I think Paul will attest to the fact that we're hearing from more people who we thought were locked down and good forever, running their own show.

Yes, I think -- Hi Paula, this is Paul. I think that going into next year, we're still going to see a pretty good influx of opportunity from people that, as Dave mentioned, probably weren't even considering selling at the beginning of the year. I know we've worked on some relationships over the last couple years that we thought, at some point, they would be sellers but they're coming out of the woodworks now. We've got offers on the table for over $400 million right now on about 31 properties.

A lot of those are off-markets and just relationships we've built, and all of a sudden, they're seeing these cap rates, and then they're wanting to go down this road to see if they can sell their properties. So the low cap rate environment, the low interest rate environment, it's just -- it's going to create a lot of opportunity, I think, going into 2014.

And again, we're going to be somewhat disciplined. We're not going to get overly aggressive on some of these larger portfolios. But I expect we'll see some more of these $100-million-plus portfolios coming to market.

Thanks, Paul. Are you getting any inbound calls from private developers looking for financial partners? The opportunities for a pre-sale agreement as an example that we're seeing in other sectors?

Yes, we are. We are not too interested in that. We are talking with some developers where we're not financing them but they're going to build and we'll buy them a C-of-O or take over their management. So we're not going to be too interested in doing financing.

If there is a large JV developer out there that's looking to build a large portfolio, that may be something we may do a joint venture with them on; and there are a couple discussions in progress now on that, in that regard. But on one-offs and especially if they're inexperienced developers that don't have a track record, we're not going to be too interested in financing their deals.

Okay. Thanks very much.

Todd Stender, Wells Fargo.

Most of my questions have been answered, but just to dig into that Westy portfolio. Are the results going to be included in your owned portfolio? Are we going to start to see occupancies amongst all your other owned stuff?

Yes, it will be included with our owned portfolio. It won't be in the same-store, obviously; but it will be in our owned portfolio.

Okay, thanks, and I don't know if I missed this, did you give the occupancies and the rent per square foot on those facilities?

Yes, Todd, the occupancy, they're all fairly highly occupied; averaged around 95%. Their in-place rents were around $24; we're probably going to -- our asking rates will probably be closer to $25.

Okay, thank you. And then how about the purchase price? Has that already been determined or once you guys get in there, obviously, you'll drive results. So theoretically, the value would head higher.

No, the -- it's a firm price. $120 million, that's our option price.

Okay, thanks, and then just lastly, what do you attribute the strong uptick in tenant insurance? Is that something you're driving more of? And secondarily, do you self-insure?

Hi Todd, this is Andy. We do not self-insure; we do pass off that risk. We don't like that risk associated with that. Strong hurricanes and some fires and things like that, you take a lot of risk when you take it on yourself. So right now, we still pass that off to a third-party.

We're pushing it hard. I mean, it is an initiative we have internally. We get a big share of those premiums collected. So we are requiring our customers to carry insurance and we expect that to continue to grow. Into 2014 and 2015, we're going to see that continue to creep up.

Great. Thank you.

Ki Bin Kim, SunTrust.

Just a couple of quick follow-ups. On your acquisition of (inaudible) acquisition or the option to purchase, just curious why the period that you can buy is only one year, one year buy?

And on a straightline basis, it looks like the payment you'll be making to the seller, it will be a 6.7% yield. So, if you don't buy by 2016, isn't there a risk that you might be paying more than you're getting in?

Sure, yes, there it is, Ki Bin. That's one of the things we're going to balance. We -- had we our druthers, we would have bought it today and we're accommodating the seller and it was a good negotiation. And the whole particulars of it, opening the window in 2015, closing the window in 2016, it was all negotiated as part of the package. But given where we are today, we would certainly execute the option.

That is part of the reason why we're keeping our balance sheet as nimble as it is, and with the capacity we have, so that we -- when the time comes, we'll have -- presumably the markets won't crater and there won't be issues; but that would be our intention, to purchase as soon as we could. Because you're right.

Now, one of the reasons we might not is if inflations runs away; and if that's the case, the 4% escalator starting in 2015 might not look so bad, but we don't know. But right now, we're keeping our options open. Our intent certainly is to take it down and to acquire it and that's how it was negotiated.

Is it fully at your option or do both parties have to agree?

It's fully at our option, Ki Bin. Actually, we are required to give a 90-day notice so we can actually notify the seller in November of 2014 that we're going to exercise our option and hopefully, acquire it as early as February of 2015. So and it's strictly at our option.

Okay. I just want to clarify the questions regarding street rate. I think you said street rates, at a portfolio level year-over-year, are up 8% this quarter. Is that correct?

Yes.

What was that number last quarter? And when you made the comment that the delta -- I'm not sure if you were mentioning in-place or street rates -- that it was going to shrink in the fourth quarter. Maybe if you could clarify that if you were referring to street rates or -- I wasn't sure what figure you were referring to.

Well, we don't think we're going to carry that 8% year-over-year right through the low season into the first quarter. We think that will shrink a bit, as Andy said, 4% or 5%. It'll -- I shouldn't say that because it probably will stay in 6%, 7% the first few months of the year. But we will see that shrink just a bit, the asking rates. And last year, not sure what the number was.

No, I meant last quarter year over year.

It was 7% last quarter.

All right. Thank you, guys.

Shahzeb Zakaria, Macquarie Group.

So going back to development, you guys mentioned in the last earnings call that there were 30 assets that were new developments, all recently opened within the trade area of your portfolio, and another 29 in the general markets where you operate. How have those figures changed since the last quarter?

Again, this is based on research we do in the field and I don't -- it's not an exact science, but we do this on a quarterly basis. And this is the most recent numbers. It was 31 in the traded, immediate trade area; and then another 26 in either being developed or in the planning stage, or we found it on the books within the planning boards. So it's a total of 57 between the two.

Got it. That is helpful. Thank you so much, guys.

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

All right. Very good, folks. We appreciate your time and interest in our Company and we look forward to the dialogue going forward. And have a good rest of your years. Thank you.

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