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Higher rents, fewer incentives help raise Sovran quarterly profit

Higher rents and fewer incentives to lure new customers helped Sovran Self Storage boost its second-quarter profits by 11 percent, the Amherst-based real estate investment trust said.

The earnings were stronger than Wall Street analysts were expecting, and Sovran executives said they were encouraged by the improvement they are seeing in most of their markets. That strengthening is allowing Sovran to cut back on its use of incentives to bring in new customers and charge higher rates.

"We're encouraged by the strong showing in all of our markets and the healthy rebound in our pricing power," said Kenneth Myszka, Sovran's president and chief operating officer.

Sovran's funds from operations, which analysts use to measure earnings at a real estate investment trust, grew to $18.5 million, or 67 cents per share, from $16.7 million, or 61 cents per share. The earnings were stronger than the 65 cents that analysts were expecting.

And while Sovran executives said the company has cut back on some of its incentives, they said their Uncle Bob's self-storage facilities will continue to offer some discounts to help lure new customers and will step up their advertising program.

"We've attracted better quality customers who stay longer and are better able to absorb rent increases," Myszka said Thursday during a conference call.

About three of every five new Sovran customers received incentives, worth an average of $90, which was less than the average of $111 in incentives that nearly nine of every 10 new customers received during the spring of 2010, said David Rogers, the company's chief financial officer. That saved Sovran about $2 million, but Rogers said the company could step up its incentives a bit as fall approaches to try to push up stable occupancy levels.

Sales at the 344 wholly owned Uncle Bob's stores that have been open for at least a year grew by 5 percent during the second quarter, primarily the result of a 4 percent increase in rent and occupancy rates that are hovering around 80.5 percent.

Revenues improved in each of the 24 states where Sovran operates, with the strongest growth in New England, New York, Tennessee and South Carolina.

Sovran purchased one self-storage facility in West Deptford, N.J., for $4.2 million. It purchased two additional stores in Newark, N.J., and one other in St. Louis last month for $17 million. It also took over management of three other properties it does not own.

The company also said it is in talks to acquire another $129 million in self-storage facilities in Georgia, Texas and Virginia, although it warned there was no guarantee a deal would be completed.

Sovran said it expects its earnings to continue to improve, rising to 69 cents to 71 cents per share during the current quarter, up from 63 cents per share a year ago and better than the 68 cents per share that analysts are expecting.

It forecast earnings for the entire year of $2.64 to $2.68 per share, which is at the high end of analyst expectations of $2.64 per share. Sovran earned $2.45 per share last year.

The stock closed down 91 cents, or 2.3 percent, at $38.59 Thursday.


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