Public Storage (PSA)

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Public Storage (PSA)

Q3 2011 Earnings Call

November 04, 2011 1:00 pm ET


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

Clemente Teng - Vice President of Investor Services

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

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


Christy McElroy - UBS Investment Bank, Research Division

Eric Wolfe - Citigroup Inc, Research Division

Jonathan Habermann - Goldman Sachs Group Inc., Research Division

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

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

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

Michael Bilerman - Citigroup Inc, Research Division

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

Ki Bin Kim - Macquarie Research

Paul E. Adornato - BMO Capital Markets U.S.

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

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

Swaroop Yalla - Morgan Stanley, Research Division



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 Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Teng, you may begin your conference.

Clemente Teng

Good morning, and thank you for joining us for our third 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 uncertainties that could cause actual results to differ materially from those projected in these statements. These risk 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 4, 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 an audio webcast replay of this conference call on our website at I'll turn the call over to John Reyes.

John Reyes

Thank you, Clem. As outlined in our press release, our third quarter core FFO per share was $1.56 compared to $1.35 last year, a 16% increase. Five items contributed to this growth: First, our same-store net operating income increased by 8.6%, adding $0.13 per share due to higher revenues of 5.8% and flat operating expenses; second, our investment in Shurgard Europe added $0.03 per share, driven primarily by Shurgard's first quarter acquisition of the remaining interest in 2 joint ventures. Non-same store properties added $0.03 per share, lower preferred dividends added $0.02 and higher ancillary income, $0.01 per share. These items were partially offset by higher G&A cost of $0.02 per share, due to increased incentive compensation. During the third quarter, we issued $488 million of 6.35% preferred stock and redeemed $525 million with a blended rate of 7.2%. In the fourth quarter, we will redeem an additional $105 million of preferred with a rate of 6.95%. It will be a charge associated with the redemption of about $3 million or $0.02 per share. As a result of these capital transactions completed in 2011, our quarterly preferred dividend is expected to be about $7 million lower in the fourth quarter as compared to the same period last year. With respect to Shurgard Europe, we expect to refinance the 2 joint venture loans into a single term loan of EUR 215 million and eliminate the underlying joint venture structures. The new loan will mature in November 2014, and will have a lower interest rate. We expect to extend the maturity of our loan to Shurgard Europe to the first quarter of 2015. Since June 30, we've acquired about $176 million of affiliated partnership interest, using $120 million in cash and issuing 478,000 shares of common stock. We incurred transaction costs of approximately $2 million, which were included in our G&A expenses. With that, I will now turn it over to Ron.

Ronald L. Havner

Thank you, John. We had a solid quarter, which reflected -- which benefited from higher occupancy and better pricing. Our same-store movements were up by 2% year-over-year, offset in part by higher moveouts of up 3%. We ended Q3 with same-store occupancy of 91.7%, up 1.3% from last year. Same-store revenue per available foot grew by 5.4%, up from 3.7% in Q2. At the end of October, occupancy, in-place rent and asking rents were all higher than the same period last year. In Q3, all of our top 20 markets achieved positive revenue growth. The Dallas and Minneapolis markets led the country, with revenue growth of 8.5%. Los Angeles, our largest market, grew revenues by 3.1%, compared to 1.5% in Q2. San Francisco, our second largest market, increased revenues by 5.8%, up from 3.6% in Q2. The Northeast markets had revenue growth of 7.1%, up from 5.9% in Q2. This growth was achieved despite a reduction in media expense. In Q4, our media expense is expected to increase by about $1 million.

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