Public Storage (PSA)

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Public Storage (PSA)

Q1 2011 Earnings Call

May 06, 2011 1:00 pm ET


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

Clemente Teng - Vice President of Investor Services

Ronald Havner - Vice Chairman of the Board, Chief Executive Officer, President and Chairman of the Board of Directors PSB


Jonathan Habermann - Goldman Sachs Group Inc.

Smedes Rose - Keefe, Bruyette, & Woods, Inc.

Swaroop Yalla - Morgan Stanley

Ki Kim - Macquarie Research

Michael Knott - Green Street Advisors

Paula Poskon - Robert W. Baird & Co. Incorporated

Christy McElroy - UBS Investment Bank

Todd Stender - Wells Fargo Securities, LLC

Ross Nussbaum - UBS Investment Bank

Michael Salinsky - RBC Capital Markets, LLC

Michael Bilerman - Citigroup Inc

Michael Mueller - JP Morgan Chase & Co

Jordan Sadler - KeyBanc Capital Markets Inc.

David Harris - Gleacher & Company, Inc.



Good afternoon. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Public Storage First Quarter 2011 Earnings Conference Call. [Operator Instructions] Mr. Teng, you may begin your conference.

Clemente Teng

Good morning, and thank you for joining us for our first quarter earnings call. Here 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 these 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, May 6, 2011, 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 could find our press release, SEC reports and audio webcast replay of this conference call on our website at

In Q1, we reviewed our Same Store pool and adjusted the composition to include properties we have operated for the last 3 years at a stabilized occupancy level. For U.S. operations, we added a net 6 properties to the Same Store pool, adjusting the comparable total to 1,931 properties. For Shurgard Europe, with the acquisition of our joint venture partner's interest, we added 60 properties to the Same Store pool, adjusting the comparable total to 151 properties. This leaves a total of 158 properties or 10.5 million square feet that have been recently acquired, redeveloped or developed that are not stabilized.

Now, I'll turn the call over to John Reyes.

John Reyes

Thank you, Clem. As outlined in our press release, our first quarter core FFO per share was $1.28 compared to $1.15 last year, an 11% increase. Four items primarily drove this growth. First, our Same Store net operating income increased by 5.4% or approximately $12 million, representing $0.07 per share. Second, we added $0.04 per share from redeeming preferred and fixed-rate securities last year. Third, properties acquired in 2010 and the first quarter of 2011 added another $0.03 per share. Fourth, our investment in Shurgard Europe added $0.01 per share.

These 4 items were partially offset by higher G&A costs of $0.02 per share. Our Same Store net operating income benefited from higher revenues of 3.4%, along with flat operating expenses. Higher property taxes and payroll expenses were offset by lower advertising and R&M expenses, primarily due to lower media and snow removal costs. Operating expenses include indirect costs, such as our information technology platform, Web-based marketing, revenue management, HR and training and all supervisory salaries. Our G&A expense was $14 million or $4 million higher than last year due to higher share-based compensation. We expect G&A expense for the remainder of 2011 will be $30 million to $36 million. We have recently completed 3 capital transactions. First, we paid off a $103 million, 7 3/4% unsecured note, having an effective interest rate of 5.7% for accounting purposes. Second, we issued a total of 375 million of Series Q preferred shares, with an annual rate of 6.5%. And third, we will redeem $350 million of our 7 1/4% preferred shares. There will be in EITF D-42 charge associated with the redemption of approximately $11 million or $0.06 per share during the second quarter.

As previously announced, Shurgard Europe acquired the remaining 80% interest in 2 joint ventures that own 72 properties for $238 million. The JVs have $280 million of debt, with an average interest rate of 4%. The transaction was funded as a dollar-denominated loan by Public Storage. Our partner in Shurgard Europe is expected to fund its proportional interest during the second quarter. We increased our quarterly dividend to $0.95 per share, a 19% increase. Our consistent, long-term dividend policy has been to distribute only our taxable income. Taxable income attributable to our common shareholders has increased primarily due to lower tax depreciation and improved property operations.

With that, I will now turn it over to Ron.

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