Public Storage (PSA)

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Public Storage (PSA)

Q3 2010 Earnings Call Transcript

November 5, 2010 1:00 pm ET

Executives

Clemente Teng – IR

John Reyes – SVP and CFO

Ron Havner – Vice Chairman, CEO and President

David Doll – SVP

Analysts

Jay Habermann – Goldman Sachs

Jordan Sadler – Keybanc Capital Markets

Eric Wolfe – Citi

David Harris – Gleacher

Paul Adornato – BMO Capital Markets

Michael Salinsky – RBC Capital Markets

Mike Mueller – JP Morgan

Paula Poskon – Robert W. Baird

Ross Nussbaum – UBS

Todd Thomas – KeyBanc Capital Markets

Michael Bilerman – Citi

Smedes Rose – Keefe, Bruyette & Woods

Presentation

Operator

Good afternoon. My name is Jacky and I will be your conference operator today. At this time I would like to welcome everyone to the Public Storage third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Teng. Your may begin your conference.

Clemente Teng

Thank you, Jacky. Good morning to you all and thank you for joining us for our third quarter earnings call. With me today are Ron Havner, CEO and John Reyes, CFO. We will follow the usual format followed by a question and answer period, however to allow for equal participation we request that you ask only one question when your turn comes up and then return to the queue for any follow-up questions.

Before we start I want to remind you that all statements other than statements of historical facts included in this conference call are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements. These risks and other factors that could adversely affect our business and future results are described in today's earnings press release as well as in our reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of today, November 5, 2010 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’re providing on this call is included on our earnings press release. You can find our press release, SEC reports and an audio webcast replay of this conference call on our website at www.publicstorage.com.

Now I'll turn it over to John Reyes.

John Reyes

Thank you, Clem. As outlined in our press release our core FFO per share was $1.35 compared to $1.30 last year representing an increase of $0.05 per share or 3.8%. Two items principally drove this growth the redemption of our equity stock and property acquisitions. In the second quarter, we redeemed $205 million of our equity stock. This eliminated $5 million of quarterly distributions to the shareholders and resulted in a corresponding increase in FFO to our common shareholders of $0.03 per share.

During the first nine months of 2010 we acquired 38 facilities for approximately $225 million. Net operating income for these facilities totaled $3.7 million in the quarter. Or $3.1 million after netting out related interest expense on the loans that we assumed to acquire these facilities. On a net basis this resulted in an increase in FFO of $0.02 per share.

Our same-store net operating income increased by 600,000 this is the first positive growth since the fourth quarter of 2008. FFO from our investment in Shurgard Europe decrease by approximately 700,000, this reduction was principally caused by currency loss of $1.8 million as the conversion ratio of euros to dollars was 10% lower than last year due to a stronger dollar.

We retained approximately $700 million of our operating cash flow during the quarter. At September 30, 2010 our cash and marketable securities totaled $615 million. During October, we had three capital transactions. On October 7, we issued $125 million of our 6.5% series P preferred stock. In connection with this issuance, we called for redemption our 7% and 8% series B preferred security for approximately $109 million. This he redemption happened today.

Also in October 25, we repurchased all of our 7.25% series J preferred partnership unit for approximately $100 million. These preferred units were otherwise redeemable in May 2011. We expect to record EITF D-42 charges of approximately $4 million or $0.02 per share related to these securities in the fourth quarter. These capital transactions will improve our ongoing annual FFO by approximately $0.04 per share.

With that I will now turn it over to Ron.

Ron Havner

Thank you, John. As we said on our last conference call, our pricing strategy this quarter was to be conservative on rental rates in order to accelerate move-in volumes as we come out of the prime rental season.

Our objective is to enter 2011 at a higher occupancy level than 2010. Our strategy worked and we had an exceptional quarter with respect to rental activity. Move-in volumes accelerated nicely and we rented 15,000 more units this quarter versus the third quarter last year for about 57% increase. This was offset in part by 6,000 more move-outs resulting in 9,000 additional customers.

As a result, the spread in year-over-year occupancy increased to 1.7% at September 30th from 1.1% at June 30th. For October, both occupancy and in place rents were higher than the prior year. Asking or street rents were above last year during Q3 as they have been for most of the year.

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