Sovran Self Storage (SSS)
Q4 2008 Earnings Call
February 18, 2009; 09:00 am ET
Kenneth Myszka - President, Chief Operating Officer
David Rogers - Chief Financial Officer
Todd Thomas - KeyBanc Capital Markets
Mark Biffert - Goldman Sachs
David Toti - Citigroup
Lou Taylor - Deutsche Bank
Michael Salinsky - RBC Capital Markets
Paul Adornato - BMO Capital Markets
Previous Statements by SSS
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Thank you. Mr. Myszka, you may begin your conference.
Good morning and welcome to our fourth quarter conference call. As a reminder the following discussion will include forward-looking statements. Sovran’s actual results may differ materially from projected results. Additional information concerning the factors that may cause such differences is included in our company’s SEC filings. Copies of these filings may be obtained by contacting the company or the SEC.
In a continuing difficult operating environment, our stores achieved a same store revenue increase of 0.5%. However, our same store expenses impacted primarily by several one time charges increased by 4.7%, resulting in same store NOI of negative 1.8%. Looking back at 2008, I’m pleased with our company’s performance, particularly from a strategic point of view. Let me mention some of our accomplishments.
We negotiated and closed on a $375 million term note and revolving credit facility which maintained our conservatively leveraged balance sheet, and will enable us to weather the current economic crisis. We entered into a joint venture agreement with an affiliate Heitman LLC and purchased 25 stores into the joint venture at a total cost of $171 million.
Although we curtailed our expansion and enhancement program on a going forward basis, we did complete improvements at 20 stores at a total cost of just under $26 million. In addition we increased our dividend for the 14 consecutive year; no small achievement considering today’s troubling economy. So we are proud of our achievements and look forward to the challenges that we’re facing.
Now for a brief review of the fourth quarter; Florida remains a drag on our portfolio’s performance. However, the numbers there are improving and move-ins for the quarter outpaced those of the fourth quarter in 2007, continuing a trend that began in Q3 of ‘08. We’ve experienced similar move-in activity company-wide, so that’s good news for us, but this is positive trend did not come without a cost.
We were quite aggressive in granting concessions to spur this activity, granting nearly $2 million more in first three month incentives than we did in Q4 ‘07. On the acquisition front, in December we acquired four stores at a total cost of $27 million into the joint venture, and one store for our own portfolio at a cost of about $4.4 million.
With the high volatility in the capital markets, our balance sheet remains strong and conservative and we believe the comfort of having this long-term fixed rate debt extending out nearly four years is well worth these substantial hit in interest expense that we are taking to current earnings.
With that, let me turn it over to Dave Rogers our Chief Financial Officer who can provide some details on the quarter’s activities.
Regarding operations, total revenues increased $917,000 or 1.8% over 2007’s fourth quarter, while property operating expenses increased by $1.1 million. This activity resulting in an overall NOI decrease of 50 basis points was 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, all of this offset by a decline in same store results that we’ll talk about in a second.
Average overall occupancy was 81.6% for the quarter ended December 31, and average rent per square foot was $10.54. Our same store revenues increased by 50 basis points over those of the fourth quarter of 2007, this gain was for the most part rate driven as our same store weighted average occupancy for the quarter declined from that of 2007’s fourth quarter by 50 basis points to 81.8%.
At the quarter-end date, same store occupancy was 80.6%, down 90 basis points from last December 31, but rental rates were slightly higher at $10.47 per square foot compared to the same store rate of $10.42 last year. While these results appear a bit underwhelming, they’ve taken considerable efforts achieve. Again, this quarter we’ve treated many of our customers to the first month’s rent free, to almost $2 million on a same store basis compared to less than half that during last years fourth quarter.
The leasing environment is as tough as we’ve seen and we are in a fact buying occupancy. Exacerbating the situation further was the fact that we took a charge against tenant receivable of $170,000. This is brought about by our concerns about higher than normal delinquencies from our military customers.
Our controls and systems to manage receivables are excellent, but certain provisions of the Soldiers and Sailors Act preclude us from utilizing the vigorous enforcement techniques we typically employ at our stores. We really don’t usually have such concern with this segment of our customer base, but with the overall economic picture being what it is and its sensitivity to our customers in the armed services we are taking a prudent approach.