Public Storage (PSA)

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Public Storage (PSA)

Q1 2013 Earnings Call

May 10, 2013 1:00 pm ET


Clemente Teng - Vice President of Investor Services

Ronald L. Havner - Chairman, Chief Executive Officer and President

Edward John Reyes - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

David F. Doll - Senior Vice President and President of Real Estate Group


Gaurav Mehta - Cantor Fitzgerald & Co., Research Division

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

David Harris - Imperial Capital, LLC, Research Division

Michael Knott - Green Street Advisors, Inc., Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Michael Bilerman - Citigroup Inc, Research Division

Jordan Sadler - KeyBanc Capital Markets Inc., Research Division



Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage First Quarter 2013 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Clem Teng. Please go ahead, sir.

Clemente Teng

Good morning, and thank you for joining us for our first quarter earnings call. Here with me today are Ron Havner and John Reyes.

All statements other than statements of historical facts included in this conference call are forward-looking statements, subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in today's earnings press release and in our reports filed with the SEC.

All forward-looking statements speak only as of today, May 10, 2013, and we assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, SEC reports and the audio webcast replay of this conference call on our website at

I'll turn the call over to Ron.

Ronald L. Havner

Thank you, Clem. The first quarter benefited from solid demand resulting in record-high occupancies and a higher realized rent. Net customer acquisition cost declined $2 per customer versus $31 per customer in 2012.

Charlotte, Denver and New York markets, our leading markets, growing by over 8%. Los Angeles, our largest market, grew by 5.5%. And San Francisco, our second largest market, increased by 6%. At the end of April, occupancy and in-place rents were higher than last year.

In the second quarter, we expect lower media and Yellow Page spend due to our record-high occupancies. In Europe, same-store NOI declined by 1%. The U.K. market continues to be negatively impacted by the VAT that was introduced last October. Q1 NOI declined by 8% in that market. We have acquired, or have under contract, 3 facilities. We also have about $170 million of project under development or redevelopment.

With that, operator, let's open it up for questions.

Question-and-Answer Session


[Operator Instructions] The first question comes from the line of Gaurav Mehta from Cantor Fitzgerald.

Gaurav Mehta - Cantor Fitzgerald & Co., Research Division

A question on your expenses. If you look at your same-store expenses, your expenses have been going down for last couple of years, I guess. So when you look at your expenses today, do you think the 1Q number reflects the long-term run rate for you guys or you think there's more expense savings ahead?

Ronald L. Havner

Gaurav, this is Ron. I think, we tell people long term, you should assume a 3% to 4% expense increase, longer term. I think what we've benefited from the last couple of years, and in particular Q1, again, is lower advertising media cost, lower Yellow Page cost. As I touched on earlier, we expect Q2 expenses in that area to also be lower. The other big swing items were repairs and maintenance. And if you recall in Q1 of 2012, we had a big surge in R&M, and so we kind of got easier comps this quarter versus last year. That was partially offset by snow removal cost in Q1, and you should expect to see an uptick in snow removal cost in Q2, offset by somewhat lower core R&M expenses.

Gaurav Mehta - Cantor Fitzgerald & Co., Research Division

That's very helpful, and one follow-up question. In your prepared remarks, you touched upon the markets that outperformed. Could you also talk about the markets that did not meet your expectations?

Ronald L. Havner

Yes. The 2 that come to mind are the D.C./Northern Virginia markets, which I think the growth is 2% to 3%, and Philadelphia is about 1.5%.


Your next question comes from the line of Todd Thomas of KeyBanc Capital.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Ron, over the last few years, I believe, Public Storage has attempted to raise rates to new customers during each of the last couple of cycles, but the pricing power wasn't really there, so the industry as a whole was filling up a bit. But it seems like the industry now and the other storage REITs are more stabilized, from an occupancy perspective, and so I was just wondering, based on what you're seeing, if you think that the industry, sort of on a broad level, be able to sustain increases in asking rent this season, and since we're maybe halfway through May, maybe you can shed some light on what you're seeing so far.

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