Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Extra Space Storage Inc. Earnings Conference Call. My name is Chandelle and I'll be your facilitator for today's call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.
As a reminder this conference is being recorded for replay purposes.
I would now like to turn the call over to your host for today Mr. Clint Halverson, Director of Investor Relations. Please proceed, sir.
Clint Halverson - IR: Thank you, Chandelle. Good afternoon, everyone and welcome to Extra Space Storage's first quarter 2013 conference call. In addition to our press release, we've also furnished unaudited supplemental financial information on our website.
Please remember that management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the Company's business. These forward-looking statements are qualified by the cautionary statements contained in the Company's latest filings with the SEC, which we encourage our listeners to review.
Forward-looking statements represent management's estimates as of today Monday, April 29, 2013. The Company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.
I'd now like to turn the call over to Spencer Kirk, Chief Executive Officer.
Spencer F. Kirk - CEO: Good afternoon, everyone. As a participant on a panel earlier this year in New York I was asked to describe in a single sentence how I view the self-storage industry for 2013. Being a man of many words I described my expectations for the year simply as solid. The first quarter definitely produced very solid results as FFO was up 39% and we experienced excellent same-store growth. Demand for storage remained strong, new supply is de minimis and our occupancies are at record levels. Organic growth remains a primary focus for Extra Space. During the quarter we reaped the benefits of previous accretive acquisitions. In addition, we benefited from greater economies of scale resulting from our growing third-party management platform. Our footprint is over 9% larger than one year ago.
I'd now like to turn the time over to Karl, our Chief Operating Officer.
Karl Haas - EVP and COO: Thanks, Spence. During the first quarter, we had great same-store revenue growth of 7.5%, that's on top of 6.3% realized in the first quarter last year. We added 62 properties to our same-store pool in 2013, consisting primarily of a 55 stabilized assets that were acquired in 2011. The addition of these 62 assets to our same-store pool contributed roughly about 100 basis points to same-store revenue growth for the quarter.
Rental rates; rental trends remain strong and our square foot occupancy continued at record high levels. Our same-store occupancy ended the quarter at 88.6%, up 2.9% over last year. We still don't see significant volumes, new development in the industry. With good demand for the product and lack of new supply, we are able to increase Street rates 3% to 4% on average for the quarter. We had strong expense control in the first quarter, increases in payroll and property taxes were partially offset by lower utility and advertising expenses. Utilities were lower, primarily due to solar panels added in 2011 to 2012; advertising was lower in Q1 as we finished our elimination of the Yellow Pages.
Net operating income for the quarter was 10.8%. This is especially impressive when you consider the net operating income was up 10.8% in the first quarter of last year. This is even more impressive when you contrast the performance with long-term industry averages that are less than half of the recent levels. Our results continue to be the best I have seen in my 25 years in the business.
Now, I'd like to turn it over to Scott Stubbs.
Scott Stubbs - EVP and CFO: Thanks Karl. Earlier today we reported first quarter FFO of $0.46 per share, $0.02 above the high end of our guidance. This bead can be attributed to better-than-expected same-store property results, lower G&A and lower interest expense. During the quarter, we added 55 properties to our management program growing the managed property count by over 30%. We also purchased a partners interest in two flagship assets located in Baltimore and Chicago. As of today, we have five additional assets under contract for $53.6 million located in Hawaii, Maryland, North Carolina and Texas.
As of the end of the quarter we had 450 wholly-owned assets, 279 joint-venture properties and 236 sites under management for a total of 965 properties. During the quarter, we actively managed the balance sheet and we reduced our weighted average interest rates by another 10 basis points. We remain committed to exploring all financing options that have a long-term benefit to our shareholders and that increased the financial flexibility of extra space. This morning we updated our full year 2013 FFO guidance to be between $1.94 and $2.01 per share. We expect FFO for the second quarter to be between $0.47 and $0.49.
Spencer F. Kirk - CEO: Thanks Scott. Our team produced a solid quarter, and we look forward to producing solid results for the rest of the year. Now I'd like to open this up with the Q&A session and we'll have Clint to start that for us.
Clint Halverson - IR: Thanks Spence. As in the past in order to ensure we have adequate time to address everyone's questions, I'd like to ask that everyone to keep your initial question brief and if possible limited to two. If time allows, we'll address follow-on questions once everyone's had an opportunity to ask their initial question.
With that we will turn the time over to Chandelle to start our Q&A session.
Operator: RJ Milligan, Raymond James.
RJ Milligan - Raymond James: Question on your same-store revenue expectations for the rest of the year, you guys increased your guidance and I am just curious what you think that mix is going to look like in terms of where is that revenue growth coming from is it an increase in expectation for Street rates, lower discounting, increases to existing customers – if you could just talk about that mix?
Karl Haas - EVP and COO: This is Karl. Yes. This is going to be all those things. We anticipate rate is – we were seeing good ability to hold Street rates up, our occupancy is holding nicely the delta will continue to slightly decrease because we don't expect to get – the delta is not going to be above 3% and chances are it will continue to do decline so by the end of the year probably less than 2% but we will continue to have existing customer rate increases, discounts we will see some decrease probably the decrease will get less and less because like with occupancy we have squeezed that pretty hard.
RJ Milligan - Raymond James: So, versus two months ago when you gave 2013 guidance which one of those levers do you think has more upside versus two months ago?
Karl Haas - EVP and COO: Probably the occupancy, but rate also is – we are pleased with the ability to be able to hold our Street rates up a little higher than we expected.
Operator: Nicholas Joseph, Citi.
Nicholas Joseph - Citi: Spencer, you mentioned that the new supplies de minimus right now, but can you put some numbers around that and compared to what you've seen historically?
Spencer F. Kirk - CEO: At the expense of repeating statistics that we've talked about many time from 2003 through 2007, a five-year period, 13,011 self-storage facilities were built in the United States, that's an average of 2,600 year. The last numbers that we saw reported by FW Dodge showed 196 total assets either under development or permits being pulled for significant redevelopment. So, if you look at 200 versus an average of 2,600 a year, it's de minimus.
Nicholas Joseph - Citi: Do you expect that to tick up in the future or when do you think supply could begin to return?
Spencer F. Kirk - CEO: I do expect it to tick up. I think supply is starting to already show. In levels of interest, we just came back from the self-storage show in Philadelphia and there was quite a bit of talk of development and new supply coming, but this is a property type. It typically takes one to two years to get an entitlement, about 9 to 12 months to build and then 2 to 4 years to lease up and even if you opened up the spigot fully today before you had meaningful supply that would be challenging this statement that supplies de minimus today. I think we're 1, 2, 3 years out before we see anything that's pronounced.
Operator: David Toti, Cantor Fitzgerald.
David Toti - Cantor Fitzgerald: Hey, Karl, a question for you. The move-in, move out rate or the growth rate seems to have flipped in this quarter versus the fourth quarter. That's sort of indicative in your mind of increasing strength versus maybe tapering demand, or is it just a seasonal pattern from fourth quarter to first quarter?
Karl Haas - EVP and COO: I'm not really, I'm haven't really looked at it that way, but do we continue to focus on the delta to last year. The reality is that we push rate, so that's going to drive rentals down a little bit. But we're looking at the combination of rate and occupancy to get to the right balance. So I really – I try not to stay too focused on the rentals, I'm looking more, where is my occupancy, and how is that compared to prior year and in revenue management is driving the rates to try to get the maximum out of the property. So it's a little bit more complicated than simply looking at the rentals for the current quarter and you could panic if you're not careful, as far as rentals could go down because we could drive rates up because we feel like we're at or getting closer to the occupancy that we're striving for.
David Toti - Cantor Fitzgerald: My second question is also to do with the gap in pricing between the Internet reservations and the internet quote versus what you're getting into walk-ins and to the callers. I know historically that's been wide, or does that kept at all given the sort of new strength and the higher occupancy levels? Are you still pricing well above sort of the – those are the rates.
Scott Stubbs - EVP and CFO: Our GAAP is still around 15%. We continue to test it. There might be some – we definitely feel that there is some property, some markets where that gap could even be larger and some where it could be smaller but in general our gap is still 15%.
David Toti - Cantor Fitzgerald: So, it is really asset and sort of inventory specific it sounds like?
Spencer F. Kirk - CEO: Yes.
Operator: Todd Thomas, KeyBanc Capital Markets.
Todd Thomas - KeyBanc Capital Markets: I am on with Jordan Sadler as well. So, follow up question on pricing. I know there are a lot of different ways that you price all of the unit but Karl, I think you mentioned that asking rents were up 3% to 4% year-over-year on average but I was just wondering what's the spread between the rent for tenants that moved out in the quarter versus tenants moving in the quarter. You are replacing vacates with higher or lower rent paying customers at this point?
Karl Haas - EVP and COO: If you are looking specifically at the tenants that are leaving and the tenants that are coming in there is always going to be a gap because people that have stayed with us a lot of time, especially they've been here with us a long time they have gotten multiple increases. But we don't focus on that, what we focus on is what our overall in place rental rates are versus what our street rates are and that gap is – that was a big problem back in 2008, 2009 that hasn't been a problem since 2009 and we are keeping that – that gap is pretty close.
Spencer F. Kirk - CEO: This is Spencer. One additional comment, Todd, as you look at the rates and what we have achieved in the first quarter you also need to factor in that our discounts are down more than 10% in the same period and it is the rate plus the discount or the elimination of the discount that provides the juice.
Todd Thomas - KeyBanc Capital Markets: So, what's the spread today than between the street rates and the in-line rent for the portfolio?
Spencer F. Kirk - CEO: They are almost right on top of each other within 0% to 2% kind of dependent on when it's measured.
Scott Stubbs - EVP and CFO: You got to keep in mind that we can change that really quickly by just pushing the Street rates, and so if you -- you have to look at it kind of over a longer period of time because I'm looking at it, it's scheduled right now that has for 2013 and in a couple of months, as a percent of over and there, a couple of months, there was a percent down. So, it goes up and down because we are constantly adjusting Street rates, but there is no deep issue there like there was three years ago.
Todd Thomas - KeyBanc Capital Markets: Understood and then the second question I was just wondering if you could give us a little color on the 55 properties added to the third-party management business in the quarter, and I was just wondering, if you can give us a sense for what's in the pipeline, what you're seeing for new contracts right now?
Scott Stubbs - EVP and CFO: The 55 assets, if you look at and it's really primarily made up of three additional. We did a portfolio of 29 assets that are located throughout the U.S. and another 10 assets located in Texas and the five assets in the Chicago area. Those assets fit our footprint very well. They are all assets that we want in the portfolio for some economies of scale. We also get management fees, tenant insurance on those that are not necessarily all assets that we would buy. So, I think it fits our footprint. We're making money on those and we saw some significant growth in the quarter. As far as the pipeline, it's more (onesies, twosies) from here on. We don't have any significant growth we're projecting right now.
Operator: Christy McElroy, UBS.
Christine McElroy - UBS: Just on Page 15, with the same-store realized rent per occupied square foot, up about 0.3% year-on-year in Q1. Your broader overall stabilized portfolio had a similar occupancy gain, but looking at rent growth it was more flattish year-on-year. Can you talk about that in sort of the context about you are moving rents throughout your whole portfolio? And if your same-store properties saw rent growth, does that mean that the rents declined at the rest of your properties. Was it necessary to go a little easier on rents to maintain or grow occupancy at those properties?
Scott Stubbs - EVP and CFO: Our revenue management system Christy doesn't look at who owns the properties. It's going to treat every property the same. So with a sophisticated revenue management system is focusing more on how to maximize the revenue rather than the rate and the occupancy. So it's a combination of rate and occupancy and it obviously does not look at all of the portfolio. So I would tell you that that's – it's basically – you'll get some of that depending on the portfolio and the number of properties within the portfolio, you'd get some discrepancies or differences.
Karl Haas - EVP and COO: I also think we probably have more occupancy opportunity on some of the third-party stuff then on owned. As a result you're going to see a little bit less rate growth because we're going to be getting probably a little bit more – looked at it in depth, but my guess would be that it's more a result, revenue management is going to be able to push rates more on more highly occupied or will be pushing rates more, more highly occupied properties and the owned properties we probably have more occupancy – a little bit more occupancy there. So that's probably what's occurring.
Christine McElroy - UBS: I guess I'm just looking at, if I just look at the same-store pool versus say just split out the 2005 Prudential JVs, occupancy is higher on the Pru JVs but the net rents per occupied square foot were down year-over-year. I am just trying to get a sense for what story is that telling me?
Scott Stubbs - EVP and CFO: Part of that is little bit of a make-up of the same-store pool. Karl addressed it a little bit in his comments but we had a change in the same-store pool this year where we added 62 assets and 55 of those assets were acquisitions that took place in 2011 and those assets have really we would say outperformed kind of the normal historical – the legacy properties. In addition we added 8 properties that were coming from our development pipeline. We've never changed our same-store definition but we do have bit of a benefit from those properties in the current year.
Christine McElroy - UBS: If I look at just the 62 properties what was the year-over-year occupancy change?
Scott Stubbs - EVP and CFO: The easier way to look at – well, I don't know if it is easier. If you look at the 2012 pool of 282 properties the occupancy change there went up about 200 basis points in the new pool the 344 assets your occupancy change went up by about 300 basis points, just under 300 basis points and the majority of that obviously is coming from these assets I don't have it specifically related to those assets.
Karl Haas - EVP and COO: We could look at this and I am sure Clint can probably get back to you with – or get out with more information related to those kind of in-depth analysis.
Operator: Michael Knott, Green Street Advisors.
Michael Knott - Green Street Advisors: Spencer, (indiscernible) crushed your prior guidance for the full year just within a couple of short months. So, I am just curious how you guys thought about when you set your initial guidance and then how you thought about where you go from here and obviously you picked up that quite a bit. But I'm just curious sort of your thoughts looking forward on the 6.5 to 8.25 for the year?
Spencer F. Kirk - CEO: As we were looking at guidance for 2013 at the latter part of last year, we did not have perfect clarity, obviously. It's easy to look back now that a third of the year come on and say morning is behind us. And with having gone through the low point of the season, the third week of February, Michael, is the slowest time of the year, historically, in self- storage and seasonality. Having gone through that and seeing what we've been able to do with the asking rate see – having seen what we could do with eliminating discounts, having taken a look at where we think this business is going to go. Q3 and Q4 in 2013, we were taking a much more conservative approach and as we've looked at how the year is transpiring and unfolding, we'd become more confident that the strong solid trends that we've been seeing will continue play out through rest of the year and once again, our guidance, it's our best educated estimate as to what we think we can produce and produce with a high degree of confidence and with May just being around the corner and our busy season coming upon us, we have firmed up our guidance and said, yeah, we are confident that we can produce these kind of result. So, that's really a recognition that we've gone through the toughest part of the year and now we have better clarity as to what rest of the year will hold for us.
Michael Knott - Green Street Advisors: Then second question would be just on the acquisition pace in your thoughts about your $150 million target for the year. How you feel about -- what you're seeing out there or what you're able to acquire, how pricing looks. How you feel about your cost of capital today? And how that maybe changes or it doesn't change, appetite for doing acquisitions?
Spencer F. Kirk - CEO: Acquisitions environment are estimated still at $150 million for the year. I think with the two properties that we acquired and the five under contract worth $66.5 million and once again, a third of the year is behind us. So I would say, we're reasonably on track for what is or could be expected. What we don't know is the numerous conversations we're having how they are going to play out and we are like every other self-storage operator that is publicly traded, we've got a nice cost of capital advantage versus the private guys both with debt and equity. The challenge for us is to be disciplined and focused on accretive acquisitions as we talked about the results of the 55 assets that were purchased in 2011 and 2012, part of our success Michael is because we were disciplined and we went after acquisitions that intellectually and financially made sense in the short term, midterm, and long-term. For us we want to remain disciplined even though we recognize with an implied cap rate with a five handle on it. That is not the time to get crazy or become irrational because things can and will change and furthermore, we recognize that a blend between debt and equity is the strategy this company tends to employee and going out after acquisitions. So I can say there's an incredible amount of money chasing too few opportunities cap rates have a lot of pressure on and Extra Space wants to be selective and bring in those that fit our footprint operationally and also that meet the short-term intermediate and long-term objectives.
Michael Knott - Green Street Advisors: So, with that you are not thinking about going into development the way Public Storage has since you would shut that down and that was sort of a permanent decision even though the acquisition environment is pretty aggressive or heated it sounds like?
Spencer F. Kirk - CEO: Yeah, but still there are opportunities out there. Last year we did $700 million of acquisitions, Michael, and $500 million were off market, and I don't know what the number will be this year but I think that there are relationships that we enjoy that say we will participate in the open market acquisition and we will participate in some off-market acquisition but we are not developing to underscore that one more time, if I could.
Operator: Steve Sakwa, ISI Group.
Steve Sakwa - ISI Group: I guess my first question maybe it is for Karl. So just talk a little bit about the expense growth or lack thereof. I know the business has become more and more technology driven and more driven by all the algorithms that you do on the Internet and I am just wondering how sustainable is a kind of 1% to maybe 2% expense growth figure. And kind of what are you saying on the property tax side that maybe hasn't come through yet like we are saying another real estate sectors right now?
Karl Haas - EVP and COO: Well, I don't think we are saying 1% to 2% growth. We are saying that the growth will be higher than that. What we are looking at is year-over-year and so whatever we put in the banks last year as far as that year-over-year not having the increase, well, then this year we start and we start over again. We are continuing – there are certain things that we are continuing to get benefit of that's going away. Yellow Pages, that's a big part of the savings that we have this quarter, and as we are almost totally out of it, it's not going to – we can't go to negative (pro forma) because we are going to have zero growth and zero expenditure, and where we will continue to spend more on the Internet, so that's going to increase. Our payroll expense as you can see, we are seeing the growth this quarter is a little bit exaggerated because we had a special bonus in there, but payroll expense is going to run 3.5% to 4% growth. The utility as we continue to invest in the solar panels, we might be able to hold that down and actually have some – our actual electricity expense I think was down by 10%, but actually natural gas was up by 9%. So, luckily, we use less natural gas and electricity, so that was a bigger savings. We continue to find things on office and expense that gives us the benefit, but once again, it's harder and harder. So, I mean, I think our guidance for the rest of the year is more – not that far from – we lowered a little bit because we got some benefit in the first quarter. We're still saying, we're going to end the year at 2.5% to 3.25% growth and that's pretty realistic. There is only so much we can cut, and so we've done a great job the last three or four years and maybe we'll find something we haven't discovered, but I don't what that's going to be. As far as property tax, I'll let Scott talk about that.
Scott Stubbs - EVP and CFO: We have estimated 3% to 4% is what we've estimated. We've done that for the past several years and it hasn't necessarily jumped at that rate, but we're expecting the municipalities to reassess our properties on an annual basis.
Steve Sakwa - ISI Group: Then just is guess a small question. In terms of like maintenance CapEx across the portfolio, what are you guys budgeting for this year?
Spencer F. Kirk - CEO: You mean cents per square foot?
Steve Sakwa - ISI Group: Yeah, if you wanted to give it that way that's fine.
Spencer F. Kirk - CEO: Yeah, I think it's in the range of $0.35. It really varies by property and type and that's CapEx. Repairs and maintenance runs about the same and it's been running the same. Our maintenance, this one thing we haven't done, we're trying to be careful to spend the money we need to keep our properties at the level that our customers expect. We increased the rents a lot and we need to give that back to them.
Operator: Michael Salinsky, RBC Capital Markets.
Michael Salinsky - RBC Capital Markets: Karl first question for you. Can you talk a little bit about street rates how that progressed throughout the quarter and were you guys the quarter up on a year-over-year basis? Also what you would need to see in the industry to give you more confidence and push and street rates a bit more aggressively, kind of back to the 2006, 2007 level.
Karl Haas - EVP and COO: It's up and down constantly. Actually in April, we went up over more, but it's – we're constantly and I guess the short answer I don't control rate revenue management group does and they are constantly tweaking it. So, it is going up and down. I think Scott probably has something in front of him that he can tell you month-by-month if that's what you are looking for.
Scott Stubbs - EVP and CFO: Yeah, our rates as far as dollar amount per unit have been pretty flat but if you look year-over-year, as Karl mentioned, they were 3% to 4% on average for the quarter depending on when you look at that what day, what time because those rates are dynamic and they are moving – they've been probably as low as 2 and as high as just over 5%.
Karl Haas - EVP and COO: Yeah, the good thing, Mike is that what we are seeing is we are at a much higher square foot delta than we thought we were going to be and yet being able to hold our rates at the 3% to 4%. It is a good combination. Certainly it is reflective of no new supply. I don't think we are unique. I think you are going to see our competitors probably will report things probably similar.
Michael Salinsky - RBC Capital Markets: Is your expectation that as occupancy gains in the second half of the year moderate that you are going to be able to push a bit on Street rates?
Karl Haas - EVP and COO: We hope.
Michael Salinsky - RBC Capital Markets: Then my second question, Scott, just to go back to your comments sound a little bit more opening you typically been on just on the secured debt front. Does that suggest that you guys are opening doing term loans and moving to more of a balanced financing strategy going forward?
Scott Stubbs - EVP and CFO: We would like to have some optionality, we would like to have in a perfect rule we would like to have a tranche of secured. We are primarily going to be a secured borrower, but if we had an unsecured tranche or even a preferred tranche we feel like that will be good for the company. Obviously it depends on terms of those types of loans and rates.
Michael Salinsky - RBC Capital Markets: So, you are okay with corporate covenants at this point?
Scott Stubbs - EVP and CFO: We are not looking to do corporate covenants at this point but it depend on the covenant some things you might consider.
Operator: Tayo Okusanya, Jefferies & Co.
Omotayo Okusanya - Jefferies & Co.: Just going back to Steve's question in regards to acquisitions, could you talk a little bit about cap rates on what you are seeing in the markets right now for Class A and B assets?
Spencer F. Kirk - CEO: Class A and Class B, once again, we've got to be a little more specific on this, when we go back to the quality scoring that we use internally, which by the way has a great deal of subjectivity even internally personality by personality here in Extra Space, but there is the quality of the physical asset itself. There is the quality of the market, in which that asset is located and then there is the quality of the location of that asset within the market. So if you want to talk Class A asset in a Class A market with the main and main location, we see cap rates that are in the five range, maybe even some drifting down a little lower. If you want to talk midmarket and the asset in the secondary market, Tayo, you might be high six as low sevens, and for us Extra Space is that we want to try and do our acquisitions with those assets that are in the 6 and 7 range. We need to have a spread. We need to be intelligent. We need to be taking the long view on this because interest rates can and will change where you are buying today property performance and other things could be affected and to go in there and acquire just to get large is not part of our strategy. We want to be disciplined. I don't if that gives you the color, but we've seen stuff starting with a five and going up and above that. Yeah that's markets kind of 6 to 7 range.
Omotayo Okusanya - Jefferies & Co.: Then second of all, it doesn't seem like you've got any real pushback in first quarter from pushing rents despite consumers generally paying higher taxes. Where you surprised at that? What does that kind of suggest to you in regards to how much you can continue to raise the rents on existing tenants going forward?
Spencer F. Kirk - CEO: What it suggest Tayo is that our existing customer rate increase program, which we test continues to produce exactly the result that we have come to expect. The tax increase at the personal level is not to our understanding or analysis had any material impact whatsoever. We're going to continue to send out rate increases in that 8% to 9% range, running about 50,000 customers a month. We have learned and learned it well long ago, that once the product is in storage it is very sticky. There's a great deal of adhesion and people aren't going to rent a U-Haul truck and take a Saturday morning and move out for the sake of 8, 9, 10 bucks it just doesn't happen. Good economies bad economies, higher taxes, lower taxes, people don't move out, it's too much hassle.
Operator: Paula Poskon, Robert W. Baird.
Paula Poskon - Robert W. Baird & Co.: So speaking of crushing, just looking at the market-by-market numbers on Page 18, Cincinnati Northern Kentucky region has had stellar performance. And as we reflect back on when you first bought those assets, I remember there was a fair amount of skepticism about going into such markets. So, can you just talk a little bit about how your acquired assets over the last say two years are performing relative to how you underwrote them? And then secondarily do you think these kinds of markets where you are going to see the most accretive opportunities going forward?
Karl Haas - EVP and COO: This is Karl, I will start and I will let Scott but there are certain acquisitions where going in we feel like we can have a lot of impact Cincinnati was one of those, prior operator the things like didn't take credit cards and had little bit restricted access hours and things like that that we feel going in can have an impact and then obviously both our revenue management and our Internet applications have also had a significant impact. We are little worried on that portfolio because there is rural properties in there that we are worried that they not have quite the impact that it does elsewhere. But it has turned out well and we've had that in a number of other acquisitions. Clearly we have an advantage. There is an advantage to being bigger, having better resources and our revenue management group is pretty sophisticated and I'll put them up against anybody in the industry but especially local operator, I have been in this business 25 years and my gut tell me we couldn't do some of things we do but because of the data and the really smart guy, less smarter than me that are making those decisions. They are doing things that we look (indiscernible) I don't know about that and it holds. I will let Scott maybe add some more color.
Scott Stubbs - EVP and CFO: As far as the underwriting goes, Paul, we are very consistent in how we underwrite things. So, our acquisition group brings things to our real estate committee and I would tell you that we don't miss badly as far as our underwriting goes. I would tell you if anything, it may be slightly conservative. I mean in Cincinnati, we didn't pro forma this kind of growth and you'd rather be surprised on the upside. As far as markets go, we continue to look at all markets. I think obviously that you prefer to buy in New York City and Los Angeles and Washington D.C., but our pricing might not make sense. So, if there is a market such as the Cincinnati, there is still a major metropolitan area and the pricing is very accretive to us. It's something we'll look at it if it makes sense with our footprint.
Paula Poskon - Robert W. Baird & Co.: Spence, just sort of a bigger picture question for you, just in terms of valuation I know obviously a lot of folks are talking about the implied cap rates of the sector and relative to historical norms. Given the technology component that's driving performance in this sector, do you think this sector is just permanently re-priced and at a lower implied cap rate level?
Spencer F. Kirk - CEO: I would hope that it is permanently re-priced because we have proven a -- when I say we -- I try to include the other public operators, but we have proven that the Internet is not the great equalizer. It is the great divider and the CASM is not only widened the rate at which it is widening is accelerating, and I just think that we as the public operators with the national footprint and the sophisticated systems that Karl alluded to can and should get credit because it is a highly fragmented business. Most of our competitors do not have to wherewithal to begin to do what we do, and I think that when you put up in the case of Extra Space at 39% FFO growth year-over-year, I would hope that we would be treated more as a growth company, unless as just a me too storage operator with a yellow page ad and some local marketing flyers going out to the local apartment complexes. The world changed and it's changed permanently.
Operator: (Jeremy Maidment, Deutsche Bank).
Jeremy Maidment - Deutsche Bank: Just going back, you just made a comment about D.C. as a market when (indiscernible) where you'd prefer to buy. But just looking at the market, it looks like it's underperformed some of your other major markets a little bit. Can you just give us a little color on what's going on in that market?
Karl Haas - EVP and COO: I actually happen to be traveling in the D.C. market last week. It's still a great market. But we pushed it very hard. It was one of the earlier high-growth markets, and I think in some cases we might have gotten -- our revenue management system is very, very good, but it's not perfect. Sometimes I think we kind of a tendency to maybe push it a little bit too hard and that I think is a case where we pushed it a little bit too hard and also in general there's -- while the rest of the countries feeling really, really good, there's a lot of -- there's a lot of concerns in the D.C. market about sequestration and I heard a lot of ad hoc comments about governmental agencies that had units – that were going in, that didn't move in or moving out, so there's a little bit of that going long as well, but if I had to bet on a long-term we love the D.C. market and the great part about it is whereas the suburbs of Cincinnati could have a lot of new properties built some day and may – and we probably will be faced with that. The D.C. market it takes – we just opened a property, a third-party owner just opened a property they've been working on for 10 years in the Gwynn, Virginia. You go into markets like that and there is not going to be a lot of new competition there and there are a ton of people with a lot of money and that's a good formula for us.
Jeremy Maidment - Deutsche Bank: Along that same line. I know you are not looking to sell any assets, but just looking at market like Houston where you know occupancies below 80% and the strong bid for storage assets you mentioned earlier. Are you changing that thinking or I mean would you look at maybe looking to call some of your assets that are either underperforming or older?
Spencer F. Kirk - CEO: It is Spencer. We are trying to build a company there might be an asset or two that we call, but realistically to Karl's point we are trying to invest in our assets to keep them relevant in the market and we will yet be more aggressive in terms of recognizing that as the portfolio ages we've got to invest additional dollars to make sure that they stand competitive in each of these markets in which we are doing business. But no, we are not trying to balance portfolio, we are trying to grow one.
Operator: Todd Thomas, KeyBanc Capital Markets.
Todd Thomas - KeyBanc Capital Markets: Just a follow-up on the Cincinnati, Northern Kentucky properties. The performance does look strong, but effective rents stick out at just under $7 a foot. I was just wondering is that a function of concessions or I mean can those properties get $9 or $10 rents over time or is that really just a lower priced market. Then secondly I was wondering, you've owned these assets now for a little over 18 months, I was just curious where the yield on that portfolio of properties is today, maybe you can remind us where the in place yield was at the time you acquired them in mid-2011?
Karl Haas - EVP and COO: I'll answer part of your question. Scott can talk about the yield, but $6 and $7 is better than $5 and $6, and that's what we've grown it. That's blended rate. Some of these properties are very rural and $6 is a great rate in some of those rural markets. Some of them are making – are in the $9 range. So, it's kind of all over the place, but I don't think we are going to get that total portfolio to $9 anytime soon. What we've been able to do though is the result, there was a lot of occupancy opportunity and you can only go. You are not going to be able to drive the rate tremendously above what the market is, but if you buy a group of properties that are 75% occupied, 80% occupied, you can drive them to 90% or 92% and that's a lot of what we've been able to do on those properties. Scott?
Scott Stubbs - EVP and CFO: As far as the yield, we haven't necessarily broken it out. We can tell you that it is north of an A cap, well, north of that.
Todd Thomas - KeyBanc Capital Markets: That's what it's yielding today?
Scott Stubbs - EVP and CFO: If you look at the cap rate and where we bought it, that is correct.
Todd Thomas - KeyBanc Capital Markets: Then just one last question on guidance. Interest expense, it looks like the first quarter annualized would be a little bit below $70 million, you are forecasting $72 million to $73 million. I was just wondering what assumptions that you're making for the balance of the year that would cause interest expense to increase towards the midpoint of that range?
Scott Stubbs - EVP and CFO: Timing of some of those loans and as we refinance or put loans on for acquisitions your debt will go up slightly, primarily through acquisition.
Operator: Christine McElroy, UBS.
Christine McElroy - UBS: Just with regard to the 100 basis points added to the revenue growth rate from the 62 properties added to the same store pull, does that include the impact of tenant insurance revenues on the newly added properties, presumably for the acquisitions that was pretty low when you bought them?
Spencer F. Kirk - CEO: Yes, but the majority of that increase is actually rom rental revenue than from tenant insurance.
Christine McElroy - UBS: Then you talked about discounts and asking rents, how much are you pushing existing customer rents currently?
Spencer F. Kirk - CEO: In the range of 8% to 9%.
Christine McElroy - UBS: Are all those numbers representative of your overall portfolio or its just your same-store properties?
Spencer F. Kirk - CEO: Overall portfolio. We don't differentiate.
Operator: Michael Knott, Green Street Advisors.
Michael Knott - Green Street Advisors: Just a follow up on Spencer your comment earlier about the discounts coming down. I think you said there were 10% less, just wondering if you can put a little more color around that? How much juices are left to squeeze out of the discount when and compared to say the top of the last cycle and then also is it possible to think about your rent gain for the quarter or year-to-year in terms of the three different buckets, how much came from the discounts receipting, how much came from Street rates and how much came from your existing customers?
Spencer F. Kirk - CEO: I'll let Karl take the second half of the question. The first question, Michael, is so our discounts were down more than 10% for the quarter, which we were pleased about. As we push our occupancies and go through this busy season and everything else, I think you will see that percentage shrinking. Just don't know that it's sustainable, obviously, we could be pleasantly surprised, but I think realistically, the asking rate will be pushed first and foremost, we'll couple that with the discount and we'll see what the effective prices that we get on each of the units, but I see that coming down.
Karl Haas - EVP and COO: Michael, as far as where the 7% plus rental rate growth came from this quarter, I think that almost half of it came from occupancy. You had almost 300 basis points from occupancy. Rates were 3% to 4% on average up for the quarter. So, another half of what's left came from the rate growth, Street rate growth, as well as the decrease discount. So, your effective rate that you're charging incoming tenant and then the rest came from existing customer rate increases.
Michael Knott - Green Street Advisors: Then just a question on Los Angeles. It looks like that's now the biggest component at least of the wholly-owned stabilized group. It looks like you had sort of above the portfolio average performance this quarter, which I don't think you had. It was below average in 2012 just curious if you're seeing a decided turnaround in that region?
Karl Haas - EVP and COO: Yes. It suffered for two or three years and now it's come around. It's a great market for us. We have very good product there and a good location, good quality, but the market has been a struggling market. There is a lot of self-storage there, and it's coming back nicely though.
Operator: At this time, there are no additional questions in the queue, and I would like to turn the call back over to Clint Halverson for closing remarks. Please proceed.
Spencer F. Kirk - CEO: Well, actually a name change, Spencer. We appreciate your interest in Extra Space today and we look forward to the Q2 earnings call in 90 days. Thanks very much. Have a good day.
Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.