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Public Storage (PSA)

Q4 2010 Earnings Call

February 28, 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 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


Jonathan Habermann - Goldman Sachs Group Inc.

Omotayo Okusanya - Jefferies & Company, Inc.

Todd Thomas - KeyBanc Capital Markets Inc.

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

Paula Poskon - Robert W. Baird & Co. Incorporated

Eric Wolfe

Ki Bin Kim - Macquarie Research

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Ross Nussbaum - UBS Investment Bank

Michael Bilerman - Citigroup Inc

Michael Salinsky - RBC Capital Markets, LLC

Michael Mueller - JP Morgan Chase & Co

Jordan Sadler - KeyBanc Capital Markets Inc.

Lukas Hartwich



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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 Fourth Quarter and Full Year 2010 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 fourth 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 in our reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of today, February 28, 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 on our earnings press release. You can find our press release, SEC reports and audio webcast replay of this conference call on our website at

Now I'll turn it over to John Reyes.

John Reyes

Thank you, Clem. As outlined in our press release, our fourth quarter core FFO per share is $1.45, compared to $1.33 last year, a 9% increase. Three items drove this growth. First, for Same Stores, net operating income increased by 4.2%, or approximately $11 million, representing $0.06 per share. Second, we redeemed fixed-rate securities in 2010, with available cash that added $0.03 per share. Third, properties acquired in 2010 added another $0.02 per share. Our Same Stores' net operating income benefited from higher revenues of 2.4%, along with lower operating expenses at 2.1%. Operating expenses were lower due to a decrease in property taxes and amortizing expenses, partially offset by higher repairs and maintenance expenses. Property taxes were lower due to refunds and lower assessments. These adjustments resulted in a decline of $5 million. We expect property taxes will be 3% higher in 2011 than last year.

Advertising expenses were lower due to a decrease in yellow pages and television, offset in part by higher Internet cost. Repairs and maintenance costs were higher, primarily due to higher snow removal costs. FFO from our investment in Shurgard Europe declined approximately $1 million, principally caused by the conversion ratio of euros to dollars, which was 8% lower. We retained approximately $100 million of our operating cash flow during the quarter. At year end, our cash and marketable securities were over $500 million.

During February of 2011, we paid off a $103 million, 7.75% unsecured notes, having an effective interest rate of 5.7% for accounting purposes. This repayment will reduce our annual interest expense by approximately $6 million. With that, I will now turn it over to Ron.

Ronald Havner

Thank you, John. Our pricing and promotional strategies worked well during the quarter. We rented nearly 13,000 more units in Q4 compared to last year, or a 7% increase. This is offset by higher move-outs of 15,000 customers. For all of 2010, we rented about 22,000 more units, offset by 2,000 more move-outs resulting in 20,000 more net customers. Our spread in year-over-year occupancy at December 31 remains healthy at 1.5% compared to 1.7% at September 30 and 1.1% at June 30.

Same Store revenues per available foot grew by 2% in Q4, compared to 1% in Q3. At the end of January, both occupancy and in-place rents were higher than the prior year. Asking or street rents were also above last year during January.

Going into the prime rental season, we are in solid position with higher occupancy and rental rates. 19 of our 20 largest U.S. markets achieved positive year-over-year revenue growth in the fourth quarter, compared to 16 in Q3 and only six in Q2. The Washington, D.C., Baltimore market lead the country at 5.1%, followed by New York at 4.6%. Los Angeles, our largest market, grew by 0.1% in Q4, compared to a decline of 0.7% in Q3. The Florida and Georgia markets were also our most improved, sequentially growing by 2.6%, up from 0.1% in Q3. Our net customer acquisition costs were lower, primarily due to higher move-in volumes, lower marketing costs and higher rental rates.

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