Public Storage (PSA)

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Public Storage (PSA)

Q2 2011 Earnings Call

August 05, 2011 1:00 pm ET

Executives

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

Clemente Teng - Vice President of Investor Services

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

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

Analysts

Jeffrey Spector - BofA Merrill Lynch

Jonathan Habermann - Goldman Sachs Group Inc.

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

Omotayo Okusanya - Jefferies & Company, Inc.

Todd Thomas - KeyBanc Capital Markets Inc.

Swaroop Yalla - Morgan Stanley

Ki Kim - Macquarie Research

Paula Poskon - Robert W. Baird & Co. Incorporated

Michael Knott - Green Street Advisors, Inc.

Christy McElroy - UBS Investment Bank

Todd Stender - Wells Fargo Securities, LLC

Michael Bilerman - Citigroup Inc

Michael Salinsky - RBC Capital Markets, LLC

Michael Mueller - JP Morgan Chase & Co

Eric Wolfe - Citigroup Inc

David Harris - Gleacher & Company, Inc.

Gautam Garg

Presentation

Operator

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

Clemente Teng

Good morning, and thank you for joining us for our second quarter earnings call. Here with me today are Ron Havner, CEO; and John Reyes, CFO. We'll 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 risk and uncertainty that can 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, August 5, 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 can find our press release, SEC reports and the audio webcast replay of this conference call on our website at www.publicstorage.com. I'll turn the call over to John Reyes.

John Reyes

Thank you, Clem. As outlined in our press release, our second quarter core FFO per share was $1.43 compared to $1.27 last year, a 13% increase. Three items primarily drove this growth. First, our same-store net operating income increased by 6.2% or approximately $15 million, representing $0.09 per share. Second, our investment in Shurgard Europe added $0.05 per share, primarily from the acquisition of an 80% interest in 2 joint ventures, along with the 13% higher euro-to-dollar currency exchange rate. Third, our nonsame-store properties added another $0.03 per share. These items were partially offset by higher G&A costs of about $0.02 per share. Our same-store net operating income benefited from higher revenues of 4%, along with flat operating expenses. Higher property taxes and property payroll expenses were offset by lower advertising, primarily due to lower television cost.

Our G&A expense for the quarter was $2.5 million higher than last year. This is primarily due to an additional $3 million for an intensive plan that is based upon 2011 same-store revenue growth. We expect this plan will add $13 million to our 2011 G&A expense compared to 2010. We recently completed several capital transactions. During the second quarter, we issued $375 million of 6.5% preferred stock, and we redeemed $518 million of 7.25% preferred stock. After the quarter, we issued $488 million of 6.35% preferred stock and called for redemption $425 million of 7.25% preferred stock. In the third quarter, there will be an associated EITF D-42 charge of approximately $13 million or $0.08 per share.

As a result of these transactions, our quarterly preferred dividend will be about $1 million lower in the third quarter and $3 million lower in the fourth quarter as compared to the same periods last year. As previously announced, Shurgard Europe acquired in early March the remaining 8% interest in 2 joint ventures that own 72 properties for $238 million. The transaction was initially funded as a dollar-denominated loan by Public Storage. In mid-June, our partner in Shurgard Europe funded its proportionate share of the investment. Although the loan bore interest at 7%, it effectively was a participating loan. Accordingly, from early March until mid-June, we received 100% of the income from the 80% interest in the 2 joint ventures. After mid-June, we began receiving our 49% share from the joint ventures. Our second quarter earnings were about $3 million higher than they otherwise would have been due to this brief period where we received 100% of the income. Also in the quarter, we agreed to purchase through mergers, the remaining partnership interest in 5 Public Storage-sponsored partnerships for $154 million. These partnerships own 47 properties with 2.7 million square feet. The transaction, which is subject to conditions, is expected to close in the third quarter. With that, I will now turn it over to Ron.

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