Life Storage Inc (LSI) 2013 Q4 法說會逐字稿

Greetings and welcome to the Sovran Self Storage fourth-quarter 2013 earnings release conference call.

(Operator Instructions)

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Diane Piegza, Vice President of Corporate Communications for Sovran Self Storage. Thank you, you may begin.

Thank you, Melissa. Good morning, everyone. Thank you for joining our fourth-quarter and full-year 2013 conference call.

Leading today's call will be Dave 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 have not and you wish to be added to our distribution list, please e-mail investedSovranss.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 located in our Company's SEC filings. Copies of these filings may be obtained by contacting the Company or the SEC.

At this time, I will turn the call over to Dave Rogers.

Thanks, Diane. Good morning, everyone. Welcome to our call.

Our fourth quarter was another good one, with occupancies increasing, rental rates growing, and costs, with the exception of property taxes, pretty much contained. Andy will provide details, but Q4 provided a nice coda to a really strong 2013.

Acquisition opportunities never missed a beat as we crossed into the new year. We were able to bring some nice properties into the portfolio. We bought five in the fourth quarter for about $45 million in existing markets of northern New Jersey, southern Connecticut, and southeast Florida.

Then right out-of-the-box in 2014, we acquired two more in southeast Florida, one in San Antonio, one in Austin, and two in Portland, Maine. Again, these are all markets where we've already have a presence. These acquisitions, at the start of the year, cost us $87 million and give us a good jump.

The overall picture of the self storage sector remains pretty much unchanged. Growth in new supply is minimal, demand is picking up, customer awareness continues to grow. So it's good.

With that, I'll that Andy give the specifics.

Thanks, Dave. Regarding operations, same-store revenues increased 6.6% over those of the fourth quarter of 2012. The growth was a result of the 210 basis point increase in average occupancy and a 3.3% increase in rates. Same-store occupancy held up well during the slow season and was 89.5% at December 31.

Tenant insurance income continued to show strong growth, increasing 21.6% in the fourth quarter of 2013 as compared to the same period in 2012.

Total property operating expenses on a same-store basis increased by 5.5%, primarily as a result of increased property taxes in Harris County, Texas. Outside of property taxes and our insurance, expenses were well controlled.

Same-store net operating income increase 7.2% for the quarter and a very strong 9.9% for the year. G&A costs were $400,000 lower this quarter over that of the previous year. The main reason for that decrease was a reduced employee incentives.

Regarding properties, Dave mentioned the five stores we purchased during the quarter. For the year we acquired 11 properties for approximately $95 million. In addition, we entered into leases for four storage facilities in November that give us the ability to acquire the stores outright for $120 million beginning February of 2015.

Our acquisitions for 2014 have started strong, and we have a lot in the pipeline. We are expecting to acquire a good number of quality properties.

On the disposition front, we sold four stores during the quarter for $12.3 million resulting in a gain of $2.4 million.

From a balance sheet perspective, we finished 2013 with a very strong position as a result of our deleveraging during the year with proceeds from our ATM program. We raised $108 million of equity through the ATM in 2013 versus the $95 million spent on acquisition.

The excess proceeds from the equity raised, along with our free cash flow, allowed us to enter 2014 with $58 million less debt than the previous year. This puts us in a good place to perhaps use a little more leverage to fund the 2004 acquisition activity.

We do expect to term out for 10 years and fix the rate on our line of credit balance, which has grown from $49 million at year end to $141 million today.

In regards to guidance, we have included in our release the expected ranges of revenues and expenses for the first quarter and the entire year. Our same-store pool for 2014 will include the 28 stores we acquired in 2012, bringing our total same stores to 386. Same-store revenue for Q1 should be in the 6% to 7% range and our NOI growth also around 6% to 7%.

Property taxes for the quarter are expected to increase between 8.5% and 9.5%. We believe that the property taxes increases we saw in 2013 could be repeated in other markets in 2014. Specifically Florida, Georgia, South Carolina, and other parts of Texas may be under pressure in 2014 based on discussion with property tax consultants.

Core G&A is expected to be at $39 million for 2014, including over $5.1 million of internet advertising. Our guidance assumes an additional $100 million of acquisitions weighted for half the year, on top of the $87 million we have completed to date. We have not included in guidance the related acquisition costs incurred to date or that will occur in the future.

Our guidance assumes a weighted average diluted share count of 32.9 million shares for 2014. As a result of the above assumptions, we are providing initial guidance and are forecasting funds from operation for the full-year 2014 at between $4.19 and $4.23 per share and between $0.94 and $0.96 per share for the first quarter of 2014.

I will now turn the call back over to Dave for some additional comments.

Thank you, Andy. Okay. Before we start with Q&A, I thought I would take the occasion of our year-end call to tout a few highlights.

With the guidance we issued this year, we are now anticipating our fourth consecutive year of double-digit FFO growth. Over that period, we delevered an already conservative balance sheet and now have one of the strongest and most flexible financial positions in the industry.

Over the past three years, in addition to the 52 stores we've put in JVs and under Third Party Management, we've acquired 85 facilities for our own portfolio. During that time, we also sold 37 properties, so we've added a net of 100 Uncle Bob stores.

These additions have been instrumental to our success, not just because of the added scale but because of the quality of the assets and the markets they are in. We significantly added to our presence in Houston, Dallas, Long Island, Charlotte, Atlanta, Miami/Lauderdale and we entered the Chicago market in a pretty big way.

Meanwhile, we've exited most of our smaller markets, including Macon and Augusta, Georgia, Tallahassee, Florida, Fayetteville and Jackson, North Carolina and northern Michigan.

The new stores are big and bright and well located. Most are third-generation, state-of-the-art storage properties. These are the kind of markets and the type of stores we expect to be in in the future.

We've invested heavily in our technology and our people. Our web marketing platform, our call center, our revenue management system, and our modular training program are all first rate. They've been the key factors in enabling us to deliver such excellent results.

Lastly, in the last year and a half, we've increased our dividend three times and now pay $2.72 a share. This provides a yield of 3.8% on today's price with a payout ratio of only about 70% of expected AFFO.

So, we are very pleased with what's going been going on here at Uncle Bob's. We're even more pleased by the prospect of continued growth and success in the coming year and years.

Okay. Commercial is over. We now return you to your regularly scheduled earnings call.

Melissa, could you please open the line to questions?

(Operator Instructions)

Gaurav Mehta, Cantor Fitzgerald.

A couple of questions. On your 2014 guidance, can you talk about what kind of occupancy gains and rental growth are you expecting?

Garth, this is Ed.

In regards to occupancy, we're expecting a 200 plus spread in points. We peaked last year at nearly 92%. We believe that we'll be beyond 93%, up to 94% plus, once we get to our peak season.

Okay. Then on the new rate side, can you provide some color on what you are seeing?

On the asking or in-place?

Asking.

On asking?

And in-place.

Well, we've been riding a 200- to 300-basis-point spread. And we believe will continue to see that through 2014.

As far as in-place goes, we do anticipate putting in a greater number of in-place rent increases, and also expect that the average rate of increase will be greater as well. We're probably expecting about 100 basis points there, 100 plus.

Okay. Great. That's all I had.

Christy McElroy, Citi.

Andy, I just wanted to follow up on the Q1 guidance of $0.94 to $0.96. If I'm starting from your core number in Q4 of $1.04, it's not usually that much of a drop off quarter over quarter.

I understand there might be some other seasonal occupancy drop. Can you just walk us through how you're getting to $0.95 at the midpoint from $1.04? I think you said there is nothing one-time in there, like acquisition costs. Right?

Correct.

What we expect to see in Q1, Christy, is significant increase in utilities, significant increase in snowplowing. Those are some oddball that we'll see in Q1 that we didn't see in Q4. We don't expect to see in the rest of the year, but we do see it then.

Property taxes, obviously, will increase significantly. G&A in Q4 had some of benefits that you won't see in Q1.

We have some solar rebates come through in Q4, some $400,000. We don't have any of that in our guidance right now, and there is none expected in Q1.

Salaries, we expect salaries and benefits and the Affordable Care Act will cost us more G& A and at the store level.

Our income tax expense in the G&A line because we don't have those solar rebate, will be higher; salaries will be higher. We are spending more on our Revenue Management Program and our personnel there.

Our Internet spend is going to be higher. It's not just the spend on the Internet, but the personnel behind that spend we expect to spend more in 2014.

Okay.

Then just to clarify on the prior question, you mentioned reaching 94% occupancy in 2014. I assume that's in Q3.

Is that on average in Q3, or is that the peak level you'll see in Q3?

Well, Christy, I might have pulled a Ken Myszka on you there.

We expect that we might hit 94% in Q3. It wouldn't be any earlier than that. That would be our peak.

And that would be on our same-store pool from last year, Christy. The new same-store actually reduces our occupancy starting point by about 70 basis points.

The old same-store pool may get to there; but the new same-store, you won't see that number.

Okay. Just to clarify, that wouldn't be the average over that quarter? That might be at some point during the quarter?

That would be the peak, yes, at some point.

Okay. In regards to the bond deal, you mentioned March 31.

In terms of timing of that, will that be right at quarter end, or what do you expect in terms of the timing?

That would be mid-April.

Mid-April, okay.

Lastly, as far as dispositions, how would you characterize the assets you've been selling? You talked about exiting certain markets.

Do you have an estimate for volume of assets that you might sell in 2014? As you look at the meaningful strengthening and cap recompression that's occurred in the private market for storage assets over the last year, why not consider selling more?

Christy, this is Dave.

We take a look at our assets every year and do a review. Basically, we're looking at markets more than properties. We wanted to get out of some of the markets where we might of been subject to inordinate competition, with just one or two players coming in. That's why we got out of a lot of markets that I mentioned.

Paul is on track all the time to be reviewing things. As a matter fact, when we bring in acquisitions, we look to see if these, perhaps, can be replacements. I think we did some of that in Texas last year.

Right. Yes, we constantly review our portfolio, Christy.

This year we may sell 5 to 10 properties. Right now, there's nothing. We're not marketing anything for sale at this point; but we'll continue our review process and by early spring, mid-spring we might bring a few to market.

We have nothing in the pipeline right now.

I think, though, that primarily, at this point, store-driven as opposed to market-driven.

That's correct. Yes. As Dave alluded to, as we buy into markets where we have a good presence, we'll look at that market.

If we have some older assets that we feel are at a peak or the location is not as well-positioned as it was in the past due to new competition, we will consider selling those.

Got you. Thank you.

Jana Galan, Bank of America Merrill Lynch.

Looking at your acquisition guidance, I believe historically you've said acquisitions are roughly a fiscal neutral in year one.

How should we think about the deals you've completed in 4Q and year-to-date and then the $100 million of additional acquisitions?

We look at them as revenue neutral, typically because of the way we fund them. We match funds with either draws on the ATM, or we'll do a stock offering and blend it with what we usually turn to longer-term fixed-rate debt. The pop from year one usually, given the duration of time it's in the fold for the year and the fact that we match it up with the normal capital costs, don't give us too much.

This year, because we issued a lot of stock in 2013 and came in in a rather delevered position in 2014, we plan to put a little more on the line of credit and leave it there than we did.

So, you get some spread investing there with a, I don't know what it is, 1.7% or so line. We are buying it 6.25% or there about. There will be a little pop from acquisitions.

We're taking a lot of it away by doing the long-term financing next month or whenever we complete it, sometime in April. But for the most part, we're counting more on the spread this year than we ever have before; but it's still not much. It's only $0.04 or $0.05.

For the acquisitions, they're mostly stabilized? Or are there some that are still unstabilized?

In the fourth quarter, Jana, they were mostly stabilized. We bought them in the 6% cap range, mid to upper 6% cap.

The ones in the first quarter --and there was one that was still in lease-up that we bought out in San Antonio -- the cap rates for the stabilized assets we bought in the first were, again, probably in the low 6%s, except for the two in Maine that they were north of 7%.

Thank you.

Shahzeb Zakaria, Macquarie.

My question is regarding the acquisitions.

Of the major portfolio that transacted in 2013, Sovran didn't close on any of them. Now, you did the deal that was over $100 million, the lease deal. And you are actively bidding on some of the portfolio that transacted last year.

Should we take the lack of closing as a sign of disciplined underwriting and an inherently different view on pricing relative to what the rest of the REITs think?

No, Shahzeb. We reviewed all those large portfolios, and we were right in to the end on a couple of those deals. Again, we are very disciplined in our acquisitions. We are not going to overpay for deals that we feel are getting overpriced.

We'll continue to review all the larger portfolios that come through. Really, mainly our acquisitions are built off of relationships with owners that they're off-market transactions.

We will continue to review all listed deals. If they make sense, we'll get our offer in. But we know where we are going to top out at, and we are not going to go over that number.

If you look at the transactions in 2013, what were the premiums assigned to portfolios versus single-asset transactions? What was that figure historically?

I would say for those of portfolios, it was probably a 50- to 100-basis-point spread as a premium for being portfolios, large portfolios.

Was that spread less or more in the past?

Probably about the same. I think from larger portfolios, you are going to have at least a 50-basis-points premium.

Maybe it jumped up to a little bit higher because of the size and the diversity of these portfolios that were transacted in the second half of 2013. Maybe a little bit bigger of a spread than typical, but usually you're going to pay a premium for a portfolio.

Got it. My last question.

If you could just given an update on the acquisitions front. Is there anything in the pipeline in California?

Yes, we've been out there quite a bit. We hope to actually buy some properties this year in California.

There's nothing imminent at this point, but we feel we're getting pretty close on some transactions out there.

Got it. That's helpful, guys. Thank you.

Todd Thomas, KeyBanc Capital Markets.

Just first to follow up on the acquisition line of questioning here. I know you have $100 million of investments in guidance.

Is that a reasonable level to expect for the full year? Is that your expectation, or would you be disappointed if that's the full-year total?

Yes, Todd. We are now seriously looking at about $150 million worth of property that we would like to close in the first half. Now, some of those may fall out.

I think with the $87 million that we've already done in the first quarter, I feel confident we should do at least $100 million, if not maybe $200 million, by end of the year. Right now, that's to be seen.

But we are seriously considering $150 million worth of deals right now, so yes. If we did less than $100 million, we would be disappointed.

Okay. Switching over to operations, curious about the level of discounting today, where that is year over year, and what the impact to same-store revenue growth is from reduced discounting in 2014?

Todd, in 2013 there was significant burn off. We certainly don't expect to see that reduction again during this year's peak selling season.

We think at best we might see 100 basis points spread over last year. Again, we won't experience the same thing.

In 2013, 4Q 2013, we did begin to see through our Revenue Management System that we needed to keep that occupancy up and be a little bit more aggressive with the concessions. So that's how we acted.

It's tough to say what the selling season is going to bring and exactly how we respond to our customers' needs out there and whether we should be more aggressive with concessions.

What was surprising to us is that I think we all maybe got a little overly aggressive in 4Q. We probably all could have benefited if we backed off that a bit.

We'll see what happens heading into the peak selling season of 2014.

Okay. Then just regarding the real estate tax increases, I was just wondering. Are the properties being reassessed? Are they recent acquisitions, or are they existing properties that you've owned for a longer period of time?

It's a combination of both, Todd.

Obviously, the recent acquisitions probably see a bigger pop. But they are going back to stores we've owned for five/six years and being very aggressive. They have the data from the portfolios that traded.

It's really tough in some of those states -- Florida, Texas, the Carolinas. We're really seeing pressure both on stores we've owned for a while and, obviously, more pressure on the recent acquisitions.

What we're seeing, Todd, is we had some pretty nice wins on property tax protest in 2009/2010, got valuations down, especially in Florida. And now, they're coming back with a vengeance.

They see, as Andy mentioned, the portfolio transaction. It's really hard to protest now when your income is up for one thing; and then they turn around and look at comparable cap rates, and it's sort of crushing.

The biggest emphasis appears to be in states where we have the greatest concentration, unfortunately.

The good news is it happens, and then they leave you alone for three or four years. You take a big whack; it resets; and then, presumably, at least for our big markets, Texas and Florida especially, we'll take some pain and then presumably just have normal at worst increases going forward.

Okay. So, it sounds like the acquisitions have been reassessed a bit more than some of the existing properties.

How do the reassessments or how do the real estate tax increases compare on some of the recent acquisitions relative to what you underwrote?

They're very similar.

It's when they come out. Sometimes we might expect it in year two or three and then hit in year one or vice versa. We had some that we thought would hit last year and did not, and we expect them to hit this year.

It's all over the board. But in general it's the underwriting, it's pretty close to the underwriting. We try to underwrite worst-case scenario based on discussion with property tax consultants.

Okay. Lastly, how many properties do own specifically in Harris County?

30 -- I think I had 33. It was in the 30s, more than 30.

Okay. Great. Thank you.

Paula Poskon, Robert W. Baird.

Just to follow up on Christy's earlier question to clarify, there is no disposition volume assumed in guidance? Is that correct?

That is correct.

Thanks. Can you tell us where the portfolio occupancy ended in January?

We had about a 15-basis-point increase in January, as the old same-store pool; so it was at 89.25% at end of January. It was a night start to the year.

Thanks, Andy. I was surprised, actually, at the ATM issuance in the fourth quarter just given the sell-offs given it in the sectors post 3Q earnings.

Can you just broadly speaking talk about how you think about using the line? How comfortable you are in terms of approaching the limits of capacity or not?

Do you have a general rule that you follow that once you get to, say, half the capacity, you feel compelled to pay that down?

Sure. Generally, $100 million on the line is when we start looking to term it out. We don't like to leave that floating rate out there. We don't like what we believe is the direction of rates.

Our Board and us, we're pretty conservative. I think you know that. We're not going to leave it out there very long on the line before we term it out.

That being said, we were ultra conservative and got ahead of things in 2013 by deleveraging, expecting 2014 would be good on the acquisition front.

You won't to see us be so aggressive on the ATM. Obviously, fixing the rate long term, we will be. We'll try to do that, again, any time we get over $100 million.

Great. Lastly, you clearly have made a lot of investments in technology platforms, personnel, etc.

How scalable is the platform as it sits today? How much more could you grow without another significant step up in platform investment?

Certainly the Revenue Management Program, the call center, our training modules are very scalable. We do continually, though, invest in the technology.

We are refining the RMS ongoing, and using outside consultant for that and our team in-house. So we're growing that process and what we use it for more and more all the time. I would say that's pretty scalable. The call center and the training platforms are very scalable.

The one that really isn't is Internet advertising. There is some, but we find that in every market we go into, we have to spend more. In new markets we spend more than in older markets. It's an on/off switch where we're more active buying at times. I would say that's the least scalable of the four.

Thanks very much. That's all I have.

(Operator Instructions)

Ki Bin Kim, SunTrust.

Just a couple quick follow-ups here. What's embedded in your guidance for spending on Internet and advertising?

$5.1 million on the advertising itself, Ki Bin. But the personnel, we have beefed up the personnel to handle that spend and the outside help that we use to spend those Internet dollars.

When you combine both -- I'm only asking because these ventures aren't in your same-store NOI numbers, which is different than your peers. What would, in total, the dollar increase look like?

Just on the Internet spend line, it should go to $5.1 million to $5.2 million next year.

Probably another $200,000 in consultants and in-house over and above what we were spending in 2013.

But that would stay in the G&A line.

Okay. Going back to the ATM topic and your balance sheet, you guys have great credit metrics, great coverage ratios. I would call it even super-investment grade if there was such a thing.

One more question regarding your decision to raise equity. I mean, it's a small amount. But is it just replenishing the war chest to get ready to buy a lot more assets in 2014 and beyond? Or is there a certain level that you want to see your fixed charged coverage ratio at?

I think were happy with our fixed charged coverage where it's at. I think we were preparing for an active acquisition season, and we want to keep that balance.

We remember the days, just a few years ago, where you don't want to be over leveraged. You don't want to be at a point where you can't access the capital markets.

If we can match fund and it makes sense cap rates based on what we are buying, it's our best use of the funds to take in those ATM funds and match later -- we're not going to match every acquisition with ATM and debt.

We're going to try to play a balance, and it might not be over one quarter. But over 1 to 2 years, you are going to see that balance.

At year end, Ki Bin, probably the pendulum was a little far on the equity weigh side. That's why we said we'll term out our line this time with a note. Then, we'll get back on the line to buy some more.

We went a little too far maybe, but that's only in anticipation of, hopefully, a good year acquisition-wise.

Okay. Last question. You guys always provide some useful color on where your street rates are year over year, fourth quarter and also staff on -- I think you guys use dollars in promotion. I was wondering if you could provide those stats for the fourth quarter? And (multiple speakers) promotions?

At the end of the year, our asking rates were up 5.7% year over year. Now, they were down -- Q3 to Q4, they were actually down 3%. Year over year, they were still 5.7% above. That's where asking rates were.

Regarding concessions, they were very similar to last year. They were $120,000 less than last year in Q4. We were about $1.5 million or so in Q4 concessions on the same-store pool.

$1.5 million?

Correct.

Okay. Thank you.

R.J. Milligan, Raymond James.

I was wondering if I could follow up on Todd's question about the same-store revenue guidance for next year?

And if maybe you could break it out between occupancy, lower discounting, and higher rents and how that attribution goes for the 5% to 6%?

R.J., what we are looking at is 200 to 300 basis points in the asking rates. 200 plus in occupancy. Concessions, not quite sure, but we're looking at maybe 50 basis points; in-place,100 plus.

Okay. That's helpful.

Your previous comments about additional spend on the Internet marketing going into next year. I was just curious where your focus was in terms of increased spend there and what you are seeing happen in terms of the online marketplace and peoples' search for storage online?

Well, putting aside the additional spend when you go into new markets, as Dave suggested, that's one piece that really isn't scalable. Everything else really is.

Right now the lion's share of the money spent in Internet advertising is on SEO. Whether it's organic or paid search, you simply have to step up and pay for it.

Right now it's all about the content marketing spend, where we spend money on social media. We do local events that actually tie-in to what we try to accomplish in web marketing.

Again, the lion's share of that money, I would say $4.5 million of the whole budget, is spent on SEO, on optimizing search.

Given the trends that you are seeing with your customers, do you think that the gap is getting wider or is contracting in terms of the difference between where the larger public players can operate and scale in terms of online marketing versus the smaller mom and pops?

It is most definitely widening.

Okay. Great. Thanks, guys.

As a smaller operator, it's just more difficult to spend that money in the right ways, in the most appropriate ways.

Appreciate it.

Shahzeb Zakaria, Macquarie.

Could you describe the appeals process for tax assessments if you guys plan to go down that route? And if so, how long does that take?

The appeal process is constant. Shahzeb.

We fight based on cap rate, based on NOI, price per square foot, age of property; but we look at the benefit. We don't want to push that assessor for a small benefit.

A lot of these assessors you have to go back to multiple times. You pick and choose your battles, where you think you can win and save a significant dollar. It's constant; especially in Texas and Florida, it's a constant battle.

I don't think we're going to see too many wins in the next year.

I think the overall climate and -- you can do what you want with your income and you prove to them you've got to have a lot of deferred maintenance. You really make your properties -- it's the anti-conference call. You make your properties look as bad as you can to these folks. And when you wind up with cap rates that have been paid and the publicity in the storage sector, every time a deal trades the local business paper has a big headline.

We've been interviewed countless times for the properties we just bought in the last few months. We are sure the assessors read the business section of the paper and boom. There it goes.

We're not going to win too much, I don't think, in 2014 or 2015.

Got it. Lastly, could you guys give us an update on what you're seeing on the development front?

Shahzeb, we monitor that on a regular basis in our markets.

Again, we're still not seeing a whole lot of new development; a lot of talk, but we are just not seeing it. Probably two years out, we will probably see a little bit of an uptick of new sites opening.

We're Sovran; again, is not developers. We are in discussions with some preferred developers in some key markets that we really would like to expand in.

But there's nothing -- again, we're just in discussions right now. Hopefully, we'll get a few deals off the ground this year. But we are not too concerned at this point.

Got it. Sounds good. Thank you so much, guys.

Paula Poskon, Robert W. Baird.

I'm just wondering, Dave, with everyone's occupancies so high, even in the seasonal trough and then heading into the seasonal upcycle, how emboldened do you think your competitors will be to really robustly push asking rents?

I think you hear it more from our larger competitors that they push rates harder. It's a conundrum to us. I think we're going to wind up this year with the highest same-store rate.

We do push. And we've really developed some things with our revenue management system, especially on the in-place side, to try to very selectively go to people who we think are going to say, pay it up and stay.

As Eddie says, the biggest thing is you've got to make sure you've got it backfilled. You got to make sure you have got a line up of people. That's the best part about high occupancy is you know you pretty much have the positions backfilled.

You would think that with a 93%/94% occupancy, you'd be really ramming the rates. But, it's a delicate thing. You just have to pick your spots on the in-place. It's a lot of easier to adjust street rates.

As Andy said, we went from our year end was 5.7% higher, our asking rate, than it was at the end of 2012. Yet for the fourth quarter, we were down 3% some because we're moving it all the time.

You're selling all the time. You're trying to pick a spot. I don't think it's as robust as the image might be. We still did 7% plus last year.

We're still going to do 6% something this year. A lot of it is going to have to be rate.

I would just caution against the idea that occupancy is up, rates are going to go like crazy. It's a little more delicate than that. It's a little more -- you've got to rifle it in as opposed to shotgun it.

Thanks for the perspective.

Ross Nussbaum, UBS.

It's actually Jeremy here.

I was just wondering, just one last thing. Can you just give us an update on the Third Party Management program you guys have?

How big of an opportunity is there to meaningfully grow that in 2014? Or just some small, steady growth like you saw in 2013 with the seven net properties add? And if you're in any active conversations now to really grow that program a little bit?

Hi, Jeremy. It's Paul.

We are very selective in our Third Party Management program. We want to bring on properties that we know we are going to buy at some point, or we'd like to buy. We have changed our focus a little bit towards some developers.

We know there's a lot of developers out there that need a management platform. Our trade shows, some of our literature is focused now more on those people in the development field.

We'll continue to look at existing properties. Again, it's going to be properties that we would want to, at some point, buy. We are still very selective.

I think we are comfortable with our growth. We end up buying some of these properties that have come to us as an opportunity. At the end of the day, we just end up buying them. That's worked out well for us.

Even if we are not adding 20 or 30 a year, we still feel very comfortable with the program; and it's doing what we expect it to do.

How much of what you did in 2013, or even the $87 million so far in 2014, came via that route? Either just conversations that started initially as maybe a Third Party Management and turned into just an outright acquisition or it came from that?

Definitely one of them, the one that we bought in Austin.

This was a relationship we built with the owner a few years ago where it was initially a management discussion, and we ended up buying his whole portfolio. He had a few left and then he came back to us at the end of last year and we ended up buying another one of his properties.

The others -- the Portland deal was a deal that we had a relationship with that guy as well. That was not a management opportunity, but he did come to ask us about managing. Then he mentioned about us buying the last one, and so we ended up discussing that. We did end up buying them.

Again, these relationships build over time and it's just -- we are still in discussions with people who are potentially looking for us to manage, but hopefully we ended up to acquire those.

One of the biggest ones we had, Jeremy, was the one in 2012 where we bought about $120 million worth that was going to definitely be a management contract right up until the very end. We bought that.

Bought one in Virginia Beach, bought one in Florida. There's been quite a few. It gives us a really good presence in the industry. It's an adjunct to acquisition pipeline.

As Paul said, we are pleased with the way it's working out. We definitely are not in it for the practice. We're not going to be taking these on just for the fee side of it. We turn away many, many, many times more than we take on.

In addition, I guess it gives a pretty good insight to what a lot of the mom-and-pop's have going on. We get to see under the hood in a lot of properties that we otherwise wouldn't have the opportunity to.

Okay. That's great. Appreciate the color.

Thank you.

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

All right. We thank you all for your time and attention. We look forward to the next one.

In the meantime, stay warm. Thanks, everybody.

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