Question-and-Answer Session
Operator
(Operator Instructions). Your first question will come from the line of J Habermann with Goldman Sachs.
Jonathan Habermann
Hey, good morning everyone. I am here with [Simon Bowen] as well. Just starting off with occupancy. Obviously given the year-over-year decline, can you just give us a sense, I know you mentioned the rate increase in January, but how do you sort of anticipate being able to put rates going forward? Is it really just more sort of an expectation that you are seeking to maintain that 90% occupancy level?
Bill Doniger
Well, as we went into the year again, we expected some softness in the first and second quarter, which we think we are seeing and also we expect to see some turn in the last half of the year and we believe that the fundamentals of the field are still being well demonstrated and built into. The fact the rate increases and again those come from an average of the rate increases to existing residents, but also the street rates, the mark-to-market effect and the other carrier charges that we have. So, it’s a blend of those factors and we don’t really see a weakening to the point that we are not going to be able to consistently affect those price increases.
Jonathan Habermann
Okay. And can you just give us a sense maybe by region or by market where you are seeing more pressure on occupancy?
Bill Doniger
It is a little bit geographic and maybe the West Coast might be the softest at this point, but we don’t see a major difference, a dramatic difference in the markets.
Jonathan Habermann
Okay. And also just touching on the expense growth, I mean obviously the increase for the quarter and obviously there were some discussion on the call about some of the factors driving it, but it seems as those some of those cost pressures may remain throughout the year. You mentioned perhaps that expense growth would return to a more normalized level, but I’m just curious what sort of gives you that confidence given that some of those cost pressures could persist for some time?
Mark Ohlendorf
Well again, I think we identify which of these items are inflationary cost pressures and which of these items are consistent with the plan that we have for the business. The two more significant drivers if you compare Q1 ’08 to Q1 ’07, we put more sales people on the ground and the field to supplement the sales resources we have on the frontline and we have a lower vacancy level in our community level management teams. Now, again both of those are things that we think are very important over the long term to have the business perform the best and are very consistent with our plan. Now that is after taking into account the impact of rolling out our ancillary service business in the quarter, the cost growth year-over-year is about 5.5% after adjusting out the impact of rolling out the ancillary services. We got a very significant pickup in revenue quarter-over-quarter related to the rollout of the ancillaries and there is some cost attended with that as well.
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