Public Storage (PSA)

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Public Storage (PSA)

Q3 2012 Earnings Call

November 09, 2012 1:00 pm ET

Executives

Clemente Teng - Vice President of Investor Services

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

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

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

Analysts

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

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

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

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

Todd Stender - Wells Fargo Securities, LLC, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

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

Presentation

Operator

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 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Clem Teng. Mr. Teng, please go ahead.

Clemente Teng

Thank you, Jackie. Good morning, and thank you for joining us for our third 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, November 9, 2012, 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 audio webcast replay of this conference call on our website at www.publicstorage.com.

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

Edward John Reyes

Thank you, Clem. I have a few comments on the impact of Hurricane Sandy. We have 90 facilities in the New York, New Jersey market of which 70 in our Same Store pool of properties. These 70 facilities generated approximately $27 million in revenues during the third quarter. Within a few days, all of these facilities were open and operating. Damage to our facilities was minimal. We expect expenditures will be less than $1.5 million for repairs.

With respect to third quarter earnings, our FFO -- our core FFO per share was $1.76 compared to $1.56 last year, a 13% increase. This growth was primarily driven by a 7.9% increase in our same-store net operating income for $0.13 per share and lower preferred stock dividends of $0.05 per share.

As announced yesterday, we will be redeeming, on December 27, 3 series of our preferred securities totaling $363 million. As a result, we expect to record an EITF expense of approximately $12 million in the fourth quarter.

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

Ronald L. Havner

Thank you, John. The third quarter benefited from solid demand, resulting in record high occupancies and higher realized rents. In Q3, customer acquisition costs declined, and customer move-ins increased by 6,200 or about 3%. Customer move-outs declined by about 2,500.

At the end of October, occupancy and in-place rents were higher than last year. The Charlotte and Denver markets led the country with revenue growth of 8% followed by Houston and Miami with about 6%. Los Angeles, our largest market, grew by 4.4%. And San Francisco, our second largest market, increased by about 5.5%. In Europe, same-store NOI improved 2% despite a challenging operating environment.

We recently acquired 8 facilities and have 2 others under contract. Total 2012 acquisition volume for third parties will be just over $200 million.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Michael Knott with Green Street Advisors.

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

Ron, just curious, your thoughts or level of worry about what happened in California this week. It seemed like with respect to the Prop 30, maybe that's actually good for the 99% versus the 1% so maybe that's actually good for your business. But what about the democratic supermajority and possibility of changing Prop 13 for commercial. Does that scare you a lot?

Ronald L. Havner

Well, Michael, I think it's a little early to comment on that since the election just happened this week.

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

You don't worry about that too much yet?

Ronald L. Havner

Well, we've always had the issue in California. It comes up from time-to-time on Prop 13. But in terms of saying that something imminent is going to happen when the legislature hasn't even convened, is a little premature.

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

Okay. Why do you think rents -- realized rent growth didn't accelerate from the 2Q pace?

Edward John Reyes

We didn't -- Michael, because we were in a position during the third quarter where we did more promotional discounting than we did in Q2, so on a relative basis, our growth slowed down.

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