Life Storage Inc (LSI) 2016 Q1 法說會逐字稿

Greetings and welcome to the Sovran Self Storage First Quarter 2016 Earnings Call. At this time all participants are in a listen-only mode. A 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 Investor Relations for Sovran Self Storage. Thank you, you may begin.

Thank you, Melissa, and good morning everyone. Welcome to our first quarter 2016 earnings call. Leading today's call will be David Rogers, Sovran's Chief Executive Officer. Also participating are Andy Gregoire, Ed Killeen, and Paul Powell.

As a reminder, the following discussion and answers to your questions contain forward-looking statements. Our actual results may differ from those projected due to certain risks and uncertainties with the company's business. Additional information concerning these factors is included in the company's SEC filings.

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

Thanks Diane and good morning everyone. Welcome to our call. We enjoyed a very busy quarter and it was a good one on all fronts. We bought a lot of properties. We grew our debt capacity and our equity base and we posted solid operating results. Andy will give the specifics, but hitting the high points our same-store top line grew 6.7%. We continue to contain operating expenses and we even got to break down some seasonal costs.

Q1 same-store NOI came in at a healthy 9.9%. Almost all of our larger markets showed same-store revenue growth north of 5% and some like Atlanta at 10.3% and San Antonio at 10.1% did much better. As has been the case lately, our stores in New England and the New York Metro Area, once again put up really good results. Fundamentals across the board are strong. A big part of our story this quarter was the announcement in January that we were in contract to acquire 30 properties for $400 million.

We're happy to report that as of today 29 of them are in the words of Stevie Wonder - signed, sealed, delivered, and absorbed into our portfolio. The 30th is scheduled to close early next week. We were also able to acquire two more stores in addition to those 30, one in LA, which is now our ninth in that market and a CO deal in Miami. This was our busiest quarter ever in terms of acquisition volume and the onboardings went smoothly.

Our pipeline, while not as robust as the first quarter pace, is decent with seven properties under contract. Three of these are stabilized and valued at $20 million, and we have four CO deals lined up for $40 million. We've expanded the disclosure of our CO properties in one of the exhibits through our press release so that includes those that are under contract awaiting completion in addition to the listing of acquired stores in lease-up. Regarding the overall acquisition front, there are more and more deals available at high quality stores in primary markets are trading at low cap rates and decent stores in secondary markets are priced pretty rich as well. Andy will describe our balance sheet transactions for the quarter, but I'd like to point out that the dividend payment that went out this month was increased by almost 12% over last year's payouts. We'd like this to signal our confidence in our company and our business. We've got a good thing going here, and we're looking forward to another strong performance in 2016. Andy?

Thanks Dave. Last night we reported same-store revenues increased 6.7% over those of the first quarter of 2015. The drivers behind the revenue growth were a 90-basis point increase in average occupancy and a 5.4% increase in rental rates. Same-store occupancy increased to 91% at March 31, 2016, as compared to 90.3% in 2015. Total property operating expenses increased less than 1% on a same-store basis. This was a result of significant reduction in utility and snow removal expenses due to the mild weather in Q1 of 2016 versus 2015. Same-store property taxes for the quarter came in as expected, increasing 6.8%. Our same-store revenue growth and controlled expenses led to higher-than-expected 9.9% increase in same-store net operating income. G&A costs were $1.1 million higher this quarter over that of the previous year, the main reasons for the increase were additional legal fees, taxes under taxable re-subsidiary, and the fact that we operated 41 more stores at the end quarter as compared to last year's first quarter.

Our balance sheet remained strong. During the quarter, we issued 2.6 million common shares through an overnight offering at a price of $105.75 per share, resulting in net proceeds of approximately $270 million, which were used to fund a portion of the acquisition as Dave discussed. Also in January, we increased the capacity in our line of credit from $300 million to $500 million further expanding our liquidity position. At March 31, we had approximately $6 million of cash on hand, $359 million available on our line of credit, and approximately $59 million available under the ATM program. With regard to guidance, same-store revenue growth for Q2 should be in the 6% to 7% range and NOI around 7% to 8%. Expenses outside of property taxes should increase between 3.5% and 4.5% for the quarter. Property taxes are forecasted to increase 5.5% to 6.5% over 2015 levels for Q2. And our annual property tax expense increase remains unchanged at 6% to 7%. Our guidance assumes the previously announced acquisitions are completed on schedule, and an additional $60 million of accretive acquisitions are completed over the remainder of 2016. We have not included in guidance the related acquisition cost incurred to date or that will occur in the future. As mentioned last quarter, our guidance also assumes $0.07 to $0.08 of FFO per share dilution from the certificate of occupancy deals we've completed to date or that are expected to be completed in 2016. As a result of the above assumptions, we are increasing our funds from operations for the full-year 2016 to between $5.49 and $5.55 per share and between $1.37 and $1.39 per share for the second quarter of 2016.

With that Melissa, we will open the call for questions.

Thank you. (Operator Instructions). Jeremy Metz, UBS.

Hey guys, good morning. I just wonder if you can give us, I know you've only owned it for -- the California stuff for a little while at this point. But just if you can give us kind of an update on how operations are going so far there? What sort of rent growth you are achieving both in terms of market rents and renewals?

Hey Jeremy its Ed. So far, well -- it's pretty early to tell, the first wave came out in January and the second wave came on just recently. But overall we're performing very well. Integration was smooth. We are experiencing some great rate growth early on given the sophistication of our operating system and the fact that we're now able to install it, literally day one. We haven't really experienced any dip in occupancy. As a matter of fact, a couple of stores are experiencing great occupancy increases, one of them specifically 20% occupancy increase. So, all in all integration has been real smooth and they are performing well.

All right. Thanks, appreciate that. And then in Houston, just wondering you dropped your guidance there after only one quarter. So, I'm just wondering what you're seeing down there, that's worse than you expected just two months ago? How confident are you in being able to hit that 5% to 6% rent growth, just given the pressures you're still seeing there on the occupancy front and then just generally did you have any issues from the flooding that was going on?

We are very comfortable with the guidance that we just put out. As a matter of fact, we've actually shrunk the occupancy GAAP December to March year-over-year and we're quite comfortable with where we are right now. We're not going to overreact to the slight softening of the economy there. We're going to continue to let our RevMan system optimize the revenues without any interference. I think something to keep in mind versus 2008, we're in a much stronger position than we were in terms of our operating system and our revenue management platforms, the ability to attract and retain customers. And we think we really have sort of fueled ourselves from the subtle ebb and flow of market conditions there.

So, we are not overreacting. We're very comfortable with performance there right now. And as far as the most recent devastation from the floods, by and large we escaped unscathed. We had some minor flooding in a few locations, there's been very few customer issues thus far and we don't expect any. One store was hit hard out of our 41 properties in the area, and frankly we were really a victim of collateral damage, the tornado came through and devastated a -- decimated a building right next door, took out part of our roof, took out some doors, but aside from that, that one store, we -- again we fared well.

Okay, and then just one last quick one on occupancy. The GAAP slipped to about 70 basis points a quarter, and I think you were targeting 100 basis points for the year. So, I'm just wondering, is that still what's expected in guidance and maybe where things stood in April? Thanks.

Hi, Jeremy its Andy. We did say we could go somewhere between 75 basis points and 100 basis points in occupancy this year, but really is that the revenue management system will play out and maximize revenue. I still feel comfortable paying 75 basis points to 100 basis points for the year, we could carry, but it really will be a function of optimizing revenue and that's where we'll end up, but I am comfortable with the 75 basis points to 100 basis points.

David Toti, BB&T Capital Markets

Good morning guys. A couple of sort of abstract questions. I'm sort of wondering if you can kind of describe the progress of pricing power in the context of rising occupancies across your portfolio and specifically in locations where there is low inventory. How do you guys manage the absolute rent level? Are you thinking about pricing along the lines of an airline ticket or a hotel room? Or are you really sort of bound by kind of market rent levels?

Well, I think it does offer challenges when you're approaching 93% and 94% because you're working with less units and then we're talking about store wide occupancy at 94% and the more popular units are going to be 100 or -- and with a waiting list sometimes. So, in that sense for those units, you do think of it more like airlines, we will bump those next customers with -- I think pretty much we're there when there are three units left, we're very close to peak pricing. As we get down to that number, we ask for credit card verification and so forth to reserve the unit which is something we don't do when we have a lot of units.

So, there is a little different attitude as we have unit sizes in specific stores that are approaching 100% or at 100%. It's a little different when you're at 90 and you've got 10 or 12 units of a particular size, that's where the special might come in. That's where you can't really force the credit card reservation system on and so it depends and as we get into May, June, July, we are going to have more of those unit sizes that are at or near 100% occupancy. So it puts a little bit of a [traction], let's talk about this before, when you have that -- when you approach the ceiling, it's tougher to manage your business and -- but I think we've got it down pretty good.

When you get into those situations, do you find that you are potentially inducing customers to move out? Do you push rents to such an extent that you create inventory?

That's the idea, sure. That's what we want, we've got somebody sitting there and that's when we are more aggressive with our in-place raises as well when you've got a waiting list or high demand, certainly we're pushing the rates to those in-place tenants a lot harder.

Okay. And then just one follow-up question, which is how would you characterize the difference in performance from a revenue growth perspective between your best and your worst asset in terms of absolute spread? And then also has that spread narrowed as the cycle has become more protracted?

Well, it's something we haven't thought about specifically, but certainly I've got to say that in the four years plus that we have had RevMan, every store has benefitted. We're on top of things like we've never been before. So, if you're saying our best store and our best market, it's operating a little bit differently, say that a lease up store or turnaround store in a weak market. But I don't think any of us can quantify how much better the best store and a good market is doing. But I can certainly say that all stores benefit significantly from the system we put in place. If something that you want David, we'll get back to you on that, I think this is if we can get a handle on.

Yes, I think what I'm just trying to get at is -- if in such a long, sort of cycle of positive fundamentals, if it sort of lift all boats in a way to such an extent that even the sort of lower performing assets are now kind of firing pretty well?

Well, you know David, you bring up a good point with the sophistication of revenue management system that we have and that our peers have. Of course, those stores that are experiencing lower occupancy, we're going to be able to lift those stores at a much quicker rate than those stores that are experiencing that higher occupancy, because of that gap, you're pushing up to get to the 100%, so I should say 100%, 95%, 96%, 97%. So the overall store, that gap is probably strong with the lower and occupancy stores just pushing up a little bit higher, pushing up against those higher occupancy stores. So with that system, yes, we're going to experience some of that.

One thing we said David before, we are at this point with as you say the rising tide lifting all the boats. We are at a point where our systems provide us the least advantage that they have through the cycle. When times are tougher, the guys with the platforms really shine out -- will really shine. I think in this time right now with a lack of new supply, with high demand, with everybody doing pretty well, the benefits of our platforms are giving us the least benefit and I think, when the tide goes out is when they really -- that's what was happening in 2010, 2011, and 2012. We far, far exceeded the industry in terms of results. Right now, it's a little harder to stand out from the mid-size operators, but when the tide goes out, if it does, that's when I think the systems again start really showing what they have.

Thanks for the details, Dave.

Gwen Clark, Evercore ISI.

Hi guys, and good morning. You guys have been really active on the CO front over the last year, but it looks like you only have one project in the pipeline for 2017. Can you talk that what you think that could go to you?

Hi Gwen, this is Paul. Yes, we are still looking at potential CO deals and some of our bigger markets. We're just being very selective and somewhat conservative. We've seen that the cap rate compression dropped to a point where some of these deals that were being put in front, those were not making sense. But, so going into 2017 as you mentioned we've got one expected to open. I would say by the end of the year we hope to have another three to five that would take us into 2017. Nothing on the books right now, but we are looking and there are some deals that I think could come to fruition, that would take us into 2017.

Okay. And separately, can you give us some color how that deals are leasing up relative to expectations thus far this year? It looks like the (inaudible) ones are doing particularly strong?

Hey, Gwen, right now they are performing well. I wouldn't say they're performing at the same level as some of our recent acquisitions, those in California, but overall early indicators show that we're performing really well. We're performing to our expectations.

This is the time, Gwen, of -- kind of the low hanging fruit. Rightly, the supply has been muted for a few years, the deals that are coming on line are well placed and well thought out. So this time in the lease-up cycle for most CO deals, I think it's quicker than ever in history, especially when you put the benefit of the web marketing and rate management systems in place. So, as far as what we have, the lease-up is one part of the story, the other part is then getting market rates. So as pretty much every sophisticated operator does, we were in this to get them occupied. And once the occupancy gets there then the RevMan guys can take control of them and start raising the rates. So, it may look really fast in the sense that the lease is up in 18 or 20 months, that's only part of the story though, they're not leased to stabilization because the rates are a bit low until you get them full and can put RevMan to work.

Okay, got it. Thank you.

Welcome.

Thank you. Ki Bin Kim, SunTrust Robinson Humphrey.

Hi guys, this is Ian actually on for Ki Bin. Just want to ask about street rate in the first quarter plus where they are in April?

Well, we ended street rates at 5.9% over last year with an average of 5.6% and right now we're trending upwards so it's quite early to tell, but asking rates are strong right now.

Okay. And just a follow-up question on that. Are you seeing the spring recent season shaping up similar to last year or is there some slight moderation?

It's pretty early, we're about 10, 12 days into it, so it's -- I don't know, no warning flags certainly, but it's pretty hard. We like to get into May. It starts pretty much mid-April and where -- all signs are good, but it's hard to put numbers to it especially without a month and to reconcile too.

Okay. Thank you.

Gaurav Mehta, Cantor Fitzgerald.

Yes, thanks, good morning. Going back to your comments on the CO pipeline, and you mentioned CapEx compression as one of the reason why you have won deals so far in 2017, but I was just wondering from your own platform capacity, it's like $0.07 to $0.08 dilution that you are expecting in 2016. Is that kind of a target number that caps out how many CO deals you can have at a time?

Yes Gaurav, we've sort of set a policy here that if we can find good deals, I will take them, but we probably don't want to dilute by more than 1.5% to 2% or so, which is somewhere in the range of $0.07 to $0.10 a share. So we might go a little bit over that. But if we want to mute it, we see the deals, we like deals, but we don't want to stretch the operations too much. And so I think that's pretty much the level we've been at is probably as fast the pace is we'll go with CO deals.

Okay, and a follow-up on CO deal. I was wondering if you could provide yield expectations on the deals that you signed in 1Q.

Like the cap rate expectations or at stabilization, is that what you mean?

Yes.

Yes, Gaurav, we underwrite 7.5% to 8% at stabilization which is -- our underwriting goes at 3 years to 3.5 years. So it's pretty much where we've underwritten all these CO deals too.

Great and lastly, Atlanta seems like one of your top-performing markets in 1Q, but if I look at the occupancy it declined 50 basis points. I was just wondering if you could provide some color as to what drove 10.3% revenue growth in the quarter?

Well, Gaurav, if we are looking at occupancy, there was a very slight decrease. But in Atlanta, we've been able to really push rates quite a bit and that's where you see the strong NOI. At the same time when you do push rates sometime there is a bit of a pricing sensitivity and you're not quite getting the activity, but all the pricing signals and the final rate signal out of RevMan adjusted in Atlanta, we're able to push rates real hard and give up just a little bit of occupancy and you can see that in the revenues in Atlanta. So, it's always just there is a subtle change in a blend of -- whether it's occupancy or revenue that we're looking for, but what we're always looking for is revenue growth and that's what we saw in Atlanta.

Great, thanks for taking my question.

Todd Thomas, Keybanc Capital Markets.

Hi, good morning. Dave, you mentioned that this was the busiest quarter ever for the company on the acquisition front, I know you have a $60 million assumption embedded in guidance for the balance of the year. Maybe you could just talk about what the pipeline looks like, if there is anything sizable out there or is it mostly ones and twos and, can you elaborate a little bit also on the pricing you touched on for high quality A properties and those in secondary markets?

Hi, Todd, this is Paul. Yes, we're still seeing some opportunity out there. I think the bigger portfolios -- there is none that I'm aware off right now that we are looking at. There are a couple of mid-size portfolios in some markets that we would be interested in, but nothing like we saw at the beginning of the year - but we are staying busy looking at opportunity. The markets are not really that we're not been interested in some of them, the ones that are in markets where we are interested, they are very expensive. There are a few Class A projects out there, again some of the pricing that we're seeing of some deals that have been done that we were involved with have actually been suffice. And we just don't see the -- it doesn't make sense to us at that cap rate.

So it is still -- it's very aggressive at their cap rates, I think over the last year has continued to drop, maybe as much as 50 basis points. We're going to be very selective as I mentioned, we are looking at a lot, but the quality is probably not what it has been in the past 6 to 8 months. So, we're being selective. I think we'll do the $60 million that we put in for our guidance. How much more I'm not sure.

Okay. And so, for the A properties, it sounds like pricings are fairly competitive. Who's selling? Are they smaller operators looking to sell at this point in the cycle? Are you seeing any uptick in activity here? Would you characterize as more of a steady flow?

It's more of a steady flow, Todd. And again, I think it's smaller operators, ones and twos, these are few three packs here and there. And again like I said there are some -- a little bit larger portfolios, five to seven properties, but they are in different parts of the country, where we don't have a presence and where we are not interested in going to. So, and again those cap rates are even dropping from what we're seeing, but again, we still have too much interest in those.

Okay. And then just in terms of operations or in terms of demand, I guess, both web and call center traffic to your stores, any pockets of strength or weakness throughout the portfolio in any markets. And then I know you utilize SpareFoot. Are you able to share how much of your web rentals or reservations are generated through leads from SpareFoot versus your own web efforts?

Sure Todd, I'll answer the first question, first. Right now, all of the web performance metrics are very positive. We certainly remain highly relevant online and continue to analyze and optimize all our campaigns. Our unique visits are up, our traffic unpaid is up, resulting in from traffic unpaid, organic search is up. So, we're doing quite well in our web efforts. In regards to SpareFoot, the ins in SpareFoot this quarter were up 61%, but only -- that's over Q4, but only 4% year-over-year. And it's sort of an instant trend because we're seeing how our very aggressive pay per click campaigns may be taking away from some of our SpareFoot move-ins, which as you can imagine isn't a bad thing, you have much more control over it when they're coming through our channels. So, I don't have the exact number in front of me what the breakdown is this quarter for the percentage of move-ins, but it's certainly under 10%, from SpareFoot.

Okay, great. Thank you.

Jana Galan, Bank of America Merrill Lynch.

Thank you. Good morning. I was wondering if you could provide an update on supply in your markets and if you could comment on any kind of changes or trends in the availability of capital for development and maybe one way to kind of gauge that is for the CO deals that the public REITs pass on. Is there plenty of private capital available or is it just not get done unless the sellers reset pricing expectations?

I'll start with the first question. In regards to new supply in our markets and immediate trade area, it remains muted. We're not seeing a whole heck of a lot of new development. The major markets for new development are for us Raleigh, the Phoenix Area, Dallas, Houston, and Chicago, but even then of those 108 projects that are either in construction or in planning right now, only about half of them are located in our media trade area. So, we continue to see not too much new supply coming in that's going to have great impact on our operations.

I think the story still is entitlement. We just got word last night that a property in St. Louis we were working with the guy on through our third-party management company, shockingly was turned down, almost [stayed] the complete approval process and he's got to go all the way back to square one. He's been working on the deal for two years and we were set to work with him to help him construct and manage it and that's pretty common across the board. The financing is easier than it was two and three and four years ago, it's still not easy, but it's easier but the entitlement process is really gumming up the works in a lot of markets. So, when we talk about 108 stores in all of our markets in the planning and early construction phase, a lot of those in the planning phase have to take a step backward. So, overall we still think somewhere in the range, I think the -- most of the industry is on board with a number of 600 to 750 stores this year coming on, mostly in markets where it's needed. So, I don't know that will last forever, but it's still a pretty good story.

Thank you. And given that in a supply that is difficult to come by, just curious if the stuff is getting built now in terms of number of units, is it significantly larger than kind of current storage facilities out there today?

Yes, this is Paul. I would say significantly larger, we are tracking some developments in the boroughs of New York and we think that may be getting a little bit heavy with development, but some of these projects are quite large. And I guess is just to make the deal work because the land is so expensive, but other than that I'm not really seeing any great increase in storage size. I think maybe the reason that perception is out there, because the stuff that public is doing, they're building -- for the most part when they build now, they're building megastores, I think the ones we (inaudible) anyway. But I think on balance most developers are still in the sweet spot of 65,000 feet to 80,000 feet perhaps.

Thank you.

Thank you. Smedes Rose, Citigroup.

Hi, thanks. I wanted to just follow up on what you just said because yesterday PSA did say that they felt the -- there were significant supply overbuilding in New York. I know you're not directly in the City or the boroughs, but it is in your largest of trade area. Could you maybe just comment a little more on what you're seeing here and how you think about demand growth in the Greater New York Area?

We do certainly see demand growth and we think it's kind of funny that for a lot of years everybody is concerned about the secondary markets and the susceptibility of those markets to be -- to have construction coming to the low barriers to entry. But of late the high barrier -- supposed high barrier entry markets have been the ones that are most impacted by new construction. I'll let Paul give a little color maybe to the boroughs.

Well, I guess we've got some potential JVs, development JVs in the boroughs. I've been there a lot recently and I've met a lot of folks in the business and toured a lot of potential sites. And just from what we're seeing from folks that we've been talking with there, there just seems to be a lot on the books, plan to be developed and they're all very large projects. So, whether this actually all gets built is yet to be seen, but there's certainly a lot of talk and Long Island City where in particular I think is going to be over-built. Of course there is a lot of multi-storey apartment complexes being developed there as well. So, I think historically the supplies have been low in the boroughs and you're not going to -- the demand is not going to be the average that you have nationwide which is 7.5 to 8. It's going to be less than that, but still I think it's -- the supply needs to catch up a little bit, but just from what I've been seeing, it could possibly get overbuilt in especially Queens and Brooklyn and Long Island City market.

Okay, thank you. I also just wanted to ask you, you haven't been in California for that long, but now that you're there, are you starting to get more -- I guess calls to sort of on a local basis or be included in deal flow for maybe onesies and twosies, that maybe would necessarily been on a broker shortlist, if you will?

Yes, that's, very true. I mean a lot of brokers that we've known for years that focus on the West Coast, they've done in the past, we would be interested in one or two here and there, now they're (inaudible) let us know when they're working on a listing or when they have a listing, we're one of the first that they let know. So, we're looking at a lot of one-offs or a small portfolio. Again the quality is not quite what we've been -- that what we bought earlier in the year. Even the markets are not exactly where we want to be, but we're going to be looking pretty aggressively out there. So yeah, to answer your question, we are seeing a bit more deal flow out on the West Coast.

We did pick up our ninth store. We had eight and the deal that we announced that was part of the rationale was to get scale in LA, so that we could take advantage of the one-offs and two-offs that Paul previously had turned out. Sure enough we didn't even close the eight from the original package when we got one in Irvine, a pretty nice store. So, it should be working.

That's it for me. Thank you.

George Hoglund, Jefferies.

Hey, good morning guys. Is there anything new you're seeing in the competitive environment that -- or you could be seeing pressure in terms of either new players who are growing quickly in your markets or are you seeing any increase in competition from the LA storage or anything else that we haven't heard of?

There is more publicity to the LA stores in pick-up and delivery type stuff. As far as new operators are traditional, no, I don't think we're seeing much of that all. As a matter of fact in a very (inaudible) sense, I guess there is consolidation actually happening in our sector with regard to that. The boutique stuff, it's getting a lot more publicity. It's kind of fun to talk about as far as you guys, there's been a couple of rounds of venture capital being put into two or three that I've read about, but you're talking something on the order of $10 million to $20 million of valuation or capitalization. It should work (inaudible) in very densely populated areas, I mean you're talking some of these entities, bringing a Tupperware tub of maybe 30 gallons cooler size to your door and you're paying (inaudible) put a couple of codes in and I'm not sure exactly what, but it really is pretty far from our traditional business.

We monitor it. We look at the price that would've -- the real killer to all these deals going way back to (inaudible) to go and public's pickup and delivery helped by the operating cost and labor costs especially. So, we monitor -- we were surprised to see one such customer cheaper than us on a pickup and delivery basis in Atlanta, one submarket of Atlanta, which is the only one out of all the ones that we've tested and that didn't last for long. It must have been a lost leader or something to that effect. So, it's out there -- it's on the fringes -- it's sort of like -- it can be carried (inaudible) boxes around (multiple speakers) possibly been around for, I don't know, 15, 16 years, never made money, changed owners three, four, five times and we considered the threat back in 2002, and took it off the threat list in 2003. So, we don't mean to be arrogant about it, but it's not our business and I don't think it's -- get a lot of publicity and over punches its weight, I think, in terms of actual deliverability and profitability.

Okay, thanks. And then just also on the acquisition front in terms of -- are you seeing any new competition when you're looking to buy properties? And also are you running into NSA at all when you're looking at either one-off deals or portfolios?

George, most of the time we don't really know who we're competing against. I mean usually the quality deal or the quality properties, we assume that we are up against our peers with those. I don't think we've been up against NSA, they might have been involved earlier with some of these portfolios that we bought earlier, this is the first quarter. But, typically our markets don't overlap. So, I don't think NSA is one of our -- (inaudible) competing against us. It's mainly our peers, potentially some private equity with -- that's doing JV with one of the REITs.

Okay, thanks guys.

Jonathan Hughes, Raymond James.

Hey, thanks guys, and good morning. Looking at your New York and Chicago portfolios, you reported pretty solid bumps in same-store revenues there for the quarter, but it looks like it is largely occupancy driven. Could you just comment on the trajectory you're expecting for rental rate growth in those two markets as we enter the summer leasing months?

I don't think it's going to be much different than the guidance that we provided overall. It might be a bit higher and those are strong stores for us. It's a strong market for us, but I don't think it's anything exceptional. Those stores, they are on what is our list of great rate strength as opposed to meeting guidance. So, that'll certainly help us, but nothing extraordinary.

And then are there any recent facility openings in direct competition in those properties that could impact leasing or rates this summer?

We don't see that right now, no.

And then just one more. I want to clarify the 7.5 to 8 demand figure Paul mentioned earlier, what exactly was that referring to?

It's the national average for the SSA puts that out since the average demand is 7.5 to 8 square feet per capita.

Okay. Thanks guys.

Ryan Burke, Green Street Advisors.

Thanks. Just wanted to touch on the C of O pipeline, real quick again. I noticed about 30% of the total cost there is in Chicago. You just maybe the fact that your Chicago stores are performing pretty well we see it from a revenue growth perspective in your numbers, but we have seen some pretty meaningful downside pressure for your peers. So, what exactly are you seeing on the ground that is different for you than your peers. And do you expect that you'll increase your development exposure there over time even further?

This is proof, but there is nothing else Ryan, that this is a micro-market business and especially in a densely packed urban area like Chicago. We've had the good fortune when we bought the four stores plus the one we've managed at the end of 2012, I believe it was -- get some good spots there and we're working with a pretty quality developer, who had a lot of stuff in the pipeline for a number of years, that he was working to build. So, part of it's spots, part of it -- we took -- even though we waited until they get stabilized, we took some stores that were maybe not managed as well as what we do, so they benefited from the platform starting into -- or continuing into year two and year three. So, yes we hear the story and we're certainly very careful as to what we're doing. I think we've taken the foot off the gas and that is as far as development in Chicago after these. I won't say none, but they will have to be a pretty much a home run before we get into it. So, we like Chicago, we're doing well there. We like the stores. We think they're going to be built really well. But, we're not in a bubble. We see what's going on with the peers and as I said, our neighborhoods are terrific in the way that these stores are performing. It hasn't surprised us, but it certainly pleased us.

Okay, thanks. And then separately, can you provide an update on the corporate alliance program. How it's performing relative to your expectations and what type of general customer you find that has ended up serving?

It did meet our expectations, right now, we continue to grow. We continue to build fast, to take care of these corporate customers and they are just that Ryan. They are the corporate customers that are utilizing multiple spaces in multiple states and we provide them with the added value features that those companies like, so they can control their storage from a central location. Corporate Alliance has never been about discounting, it's always been about adding value and we look forward to continuing to grow that part of our business.

Okay, thanks. And do you have a view on how the impact or the advance of e-commerce stood or set to that business line overtime?

It's going to have great effect on how we operate. It already is. Like I said, easily go out and provide a discount to corporate customers, but what you want to provide them is with sophistication with the operating system that we have allowing them to manage their storage. When you say e-commerce, I guess, to me it means providing the ability to manage storage online with great ease and sure it's right now technology is what really is driving the Corporate Alliance program.

I think, Ryan, I'm not sure if you're getting at what (inaudible) used to call the last mile on e-commerce, that our Corporate Alliance isn't there, where we're helping the supplier get stuff to a UPS station. So for -- this is more helping the businesses, manage their inventory in multiple states, but it's not that -- I might be reading too much into it, I remember that used to be a pretty big buzzword in the early '90s -- early 2000s with the last mile, like to think, and this is not that.

Okay. It was an open-ended question, so (multiple speakers) response. That's all I had.

(Operator instruction). Todd Stender, Wells Fargo.

Hi guys, just a couple quick ones on CapEx. Your recurring number looks like about $22 million this year. Just want to see that earmarked for the in-place portfolio. I wonder if you could ramp just to account for the new $400 million of properties that you already closed on pretty early in the year.

Todd, we expect our recurring CapEx to be in $0.45 to $0.50 per square foot and that's some $14 million to $15 million. We're doing some rehab and some other improvements to stores to make more relevant that might drive that up this year, and that's why you see the higher number this year.

With regard to the $400 million that we bought, those stores were really good shape. So, there was not a lot set aside for those, certainly you reserve, but there won't be a big impact from the 30 stores that we bought this year, they we're in exceptional shape.

Thanks, Dave. And then just as we model out C of O deals that come online, they stabilize. When do you start to account for CapEx for a new property, that count in years, when do we start to look at that kind of stuff?

We don't see a whole lot before three years, Todd. I mean those -- obviously the new stores -- they don't require a whole lot, three years to make a start seems a little bit, but really the major CapEx is not for many years down the road, you're paving into roofs, you're 15 to 20 years.

Got it. Okay, thanks guys.

Ki Bin Kim, SunTrust

Thank you. I'm not sure if this has already been answered or not, but -- so in 2014, the second quarter, you guys had a really good quarter, street rates were up 9% and second quarter, last year street rates were up 8%. I know it's early into the spring leasing season, but are you noticing any incremental changes in customer behavior when they receive a rent increase letter? Or are you noticing customers becoming more price sensitive and (inaudible) overall continue to increase?

Ki Bin, what we are experiencing right now is quite the opposite. We're seeing that those that receive increases that sensitivity has actually gone down. The average increase went from 9.7% versus 13.2%, yet our retention rate remained strong and the move-out rate for those customers in particular that received increases was down about 200 basis points, down to 9.3%. Putting that in perspective, if you go back two years ago -- 2.5 years ago -- the move-out rate for in-place was in the neighborhood of mid-teen 14% to 16%. So, when we look at it right now, our customers receiving increases are actually less sensitive. So, again things are real positive when it comes to putting in these increases.

Okay, thank you.

Thank you. Mr. Rogers there are no further questions at this time. I'd like to turn the floor back to you for final remarks.

Thanks everyone for your interest in our company and your time this morning. We look forward to seeing you at NAREIT. Take care.