Sovran Self Storage, Inc. (SSS)
Q3 2008 Earnings Call
November 6, 2008; 09:00 am ET
Kenneth Myszka - President, Chief Operating Officer
David Rogers - Chief Financial Officer
Todd Thomas - Keybanc Capital Markets
David Doty - Citigroup
Mark Biffert - Oppenheimer & Co.
Mike Salinsky - RBC Capital Markets
Paul Adornato - BMO Capital Markets
Previous Statements by SSS
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Thanks Samantha. Good morning and welcome to our third quarter conference call. As a reminder the following discussion will include forward-looking statements. Sovran’s actual results may differ materially from projected results. Additional information concerning the factors that may cause such differences is included in our company’s SEC filings. The copies of these filings may be obtained by contacting the company or the SEC.
While our storage turned in a solid third quarter in a very competitive marketplace, same store revenues increased by 0.2%, while the same store expenses impacted by several one-time charges increased by 6.3% resulting in a same store NOI of minus 3.3%.
Although the Florida markets remained a drag on our portfolio’s performance, the numbers there are improving and move in’s for the quarter far outpace those in the third quarter in 2007. In fact, we experienced similar move in activity company wide. This positive trend did not come without of cost spillover. We were quite aggressive in granting concessions to spur this activity and as a result we don’t see the revenues hit our P&L for a while.
On the acquisition front, in July we acquired 21 stores in five states at a total cost of $144 million into our JV with Heitman. With high volatility in the capital markets, our balance sheet remains strong and conservative and we believe that the comfort of having long-term fixed rate debt extending out nearly four years is well worth the substantial hit we’re facing.
With that, I would like to turn it over to Dave Rogers, our Chief Financial Officer, who’ll provide some details of our quarter’s activities.
Thanks Ken. With regard to operations for the quarter total revenues increased $1.7 million or 3.4% over 2007 third quarter and property operating expenses increased by $1.5 million. These increases resulting in an overall NOI increase of 80 basis points, were primarily due to the addition of the six stores we purchased since October of last year and the impact of the joint venture properties acquired during the quarter offset by a decline in same store results I’ll get to in a minute.
Average overall occupancy was 83.3% for the quarter ended September 30 and average rent per square foot was $10.48. Same store revenues increased by 10 basis points over those of the third quarter of ‘07 again was rate driven as our same store weighted average occupancy for the quarter declined from that of ‘07 third quarter by 170 basis points to 83.4%. At the quarter end date, same store occupancy was 83.3%, down 100 basis points from last September 30. The rental rates were higher at $10.48 a foot compared to same store rate of $10.39 last year.
Now these results are rather underwhelming. They mask a lot of the effort we put into achieving occupancy. We treated many of our customers to the first months rent free to the tune of over $2.1 million on a same store basis compared to half of that during last year’s third quarter.
Our goal was to capture the traffic of the busy seasons to put customers in our stores ahead of the upcoming seasonal slow time. Costly - yes; beneficial - we think so. Our September 30 occupancy of 83.3%, was only 20 basis points behind at of our June 30 levels. Typically, by the end of the third quarter were 150 to 200 basis points behind as we enter into the slower season.
Operating expenses on a same store basis increased by 6.3% this period, which was an unexpected surprise. Of this almost $300,000 was the insurance deductible portion of the damages sustained at some 20 stores in the Gulf region during Hurricanes Gustav and Ike. Another $300,000 was due to spiked utility costs at our stores in the Houston and Dallas markets.
Unfortunately, there was a lot of disruption to the transmission grade in that area throughout much of the summer and we were paying in the range of $0.15 to $0.16 per kilowatt hour versus our usual $0.07. We consider both the hurricanes damage and the electrical charges one-time items that should not have an impact going forward.
Property taxes increased by 3.6%, payroll by almost 6% and curve of fuel maintenance by about 13%, but we had planned for these. We think that for the most part expenses have been and should continue to be well contained. After the unforeseen hurricane damage costs and the Texas utility cut overages, our same store operating expense growth would have been under 3%. We expect this normalized level of increase in Q4 and into 2009.
Growing the top line by 10 basis points and absorbing a 6.3% increase in operating costs resulted in a same store NOI decrease of 3.3% for the quarter. Taking out the one-time hits our NOI declined by about 1.5%. G&A costs for the period came in at $4.3 million, which is pretty much as expected, the increase of 8% over last year’s amount is primarily due to cost incurred managing and overseeing the joint venture stores.