Sovran Self Storage, Inc. (SSS)

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Sovran Self Storage, Inc. (SSS)

Q2 2010 Earnings Call Transcript

August 5, 2010 9:00 am ET

Executives

Ken Myszka – President and COO

Dave Rogers – CFO

Analysts

Todd Thomas – KeyBanc Capital Markets

David Toti – FBR Capital Markets

Eric Wolfe – Citi

Christy McElroy – UBS

Ki Bin Kim – Macquarie

Michael Salinsky – RBC

Ross Nussbaum – UBS

Presentation

Operator

Greetings. And welcome to the Sovran Self Storage second quarter 2010 earnings release conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Myszka, president and chief operating officer for Sovran Self Storage. Thank you. Mr. Myszka, you may begin.

Ken Myszka

Thanks, Evan. Good morning, and welcome to our second quarter conference call. As a reminder, the following discussions will include forward-looking statements. And our actual results may differ materially from these projected results. Additional information concerning the factors that may cause such differences is included in our company's SEC filings. And copies of these filings may be obtained by contacting the company or the SEC.

Well, although market conditions continue to be challenging, we do see some positive trends developing in many of our markets. And I think that's an important point to keep in mind, especially during these difficult economic times. We shouldn't lose sight of the big picture. The question I think we need to keep in mind there as a whole, "Where is this industry headed, up or down," and, "Who is in that industry house, any particular company performed over the last four to six quarters? And is the trend up or down for that company?"

For the first time in five quarters, our portfolio generated positive same store revenue growth. Now, through most of our 26 years in the business, our same store revenue growth of less than 1% would not be much cause for celebration, honestly. However, this continued positive trend, which began in the third quarter of last year, unfortunately, we were unable to match the 3.6% decrease in same store operating expenses of last year's second quarter.

We initiated intense costs into our leverage as far back as Q4 of 2008. In fact, each quarter last year reflected negative same store operating expenses year-over-year. And now, it's impossible to maintain a quality portfolio without spending the dollars necessary to keep the stores in A1 condition. Thankfully, we're up again from difficult times on the operating expense side of the ledger.

So summarizing the results of our quarter, we generated half of the same store revenue growth of 22.4%, operating expense growth of 3.8%, and negative NOI of 1.8%.

Now for just a couple of specifics for the quarter, although we had fewer traditional telephone inquiries year-over-year, total inquiries to our company increased by 7% as our Web optimization efforts continue to be successful with 66% more Web inquiries this quarter of 2010 versus last year's second quarter. We also continued our practice of selectively increasing rates on an increasing number of in-place customers, and observe little pushback.

In other matters, we've made no acquisitions for our accounts or in behalf of our joint venture. However, we do see some more candidates on the market than the prior periods. Unfortunately, overall sellers are still regarding the value of their properties at numbers probably more reflective of two or three years ago. We sold eight properties in May at a total price of $22.1 million, realizing the gain of $7.5 million on net sales.

And with that, let me now turn the call over to Dave Rogers, our chief financial officer, who will provide some more details on our quarter's activities.

Dave Rogers

Thank you, Ken. With regard to operations for the quarter, total revenues increased $182,000, up 40 basis points from 2009 second quarter; while property operating expenses increased by about $700,000, resulting in an overall NOI increase of 1.7%. These overall results reflect the impact of the store we opened in Richmond last fall and the decline in same store NOI, that I'll get to in a minute, net of the operating results of the eight stores we sold in the period.

Average overall occupancy was 18.5% for the quarter ended June 30th. And average rent per square foot was $10.16. The overall occupancy rate at the end of the quarter was 81.8%, 90 basis points lower than that of last June's end. This level was less than we anticipated at the end of first busy season quarter. It was negatively impacted by an aggressive pricing strategy we put in place beginning Memorial Day weekend.

Same store results now include 353 of our 354 company-owned stores. Only the development store in Richmond and the 25 JV stores are excluded from the pool. As Ken mentioned, same store revenues increased by 20 basis points over those of the second quarter of 2009. This was primarily the result of same store rent and occupied space improving by 40 basis points, offset by a decline in the weighted average of 20 basis points at 80.7%.

Other income, especially commissions on tenant insurance, increased by over $200,000. The quarter end occupancy rate for the same store pool was 82%, about 50 basis points lower than last June 30th's level. We continue to buy occupancy in this highly competitive environment. But for the second quarter in a row, our move-in incentives declined on a year-over-year basis. Last year's second quarter saw us granting $4.9 million worth of move-in specials. This year we gave up $4.1 million, primarily as a result of June's aggressive pricing push. Our frequency of incentives offered declined to less than 89% of move-in costumers as opposed to more that 95% in 2009's second quarter.

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