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Sovran Pruning Portfolio with Eye to Expand

08/30/2012 | By Carisa Chappell

In a move to make room for the acquisition of new facilities, Sovran Self Storage Inc. (NYSE: SSN) is trimming its portfolio.

The self-storage REIT announced Aug. 23 that it had sold 12 of its storage facilities in Houston and Dallas. The transaction was one of the largest self-storage portfolio sales in the United States this year and included more than 8,000 units encompassing approximately 900,000 rentable square feet. David Rogers, CEO of Sovran Self Storage, said the deal reflects the company's ongoing approach to expansion.

"Over the course of the past year, we acquired some 35 properties in the Houston and Dallas markets," said David Rogers, CEO of Sovran Self Storage. "A number of these stores overlapped the market areas of stores we already owned, so we decided to prune the older, more established stores to make room for the new."

He added that the decision to sell was part of the company's strategy of recycling capital. The $3.5 million in proceeds from the sale were used to reduce the outstanding balance on the company's line of credit.

Sovran plans to add facilities in markets where the company already has a presence and expand into new markets. It recently entered the Chicago market in June 2012 with the acquisition of two facilities.  Rogers said Sovran has no specific plans to sell any more stores, but he added that the company evaluates its assets on an ongoing basis.

Gaurav Mehta, REIT analyst with Cantor Fitzgerald, has taken a positive view of Sovran's latest moves.

"Overall, we think the sale of the 12 facilities in Texas is a good thing," Mehta said. Sovran is "improving [its] profits, and [it has] been quite active," according to Mehta.

Mehta also noted that the company reported strong second quarter results. Sovran's funds from operations (FFO) for the quarter were 77 cents per fully diluted common share, compared to 67 cents for the same period last year, marking a 15 percent increase.

Michael Bilerman, managing director of Citi Investment Research, increased his 2012 and 2013 FFO estimates for Sovran based on occupancy levels that have been higher than forecasted and increased acquisition volume.

Sovran is also using its capital to invest in its technology and expand its third-party management platform.

"We feel we have gained market share ahead of industry growth due to our marketing and technological initiatives, notably our Web-based marketing programs, our revenue management system and our state-of-the-art call center and customer care platform," Rogers said.

Rogers said a "somewhat stronger economy" in parts of the country and an uptick in housing transactions have been primary drivers of growth in the self-storage industry.

Sovran owns or manages 445 self-storage facilities under the Uncle Bob's Self Storage brand.