Public Storage's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Public Storage (PSA)

Q1 2012 Earnings Call

May 04, 2012 1:00 pm ET


Clemente Teng - Vice President of Investor Services

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

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


Christy McElroy - UBS Investment Bank, Research Division

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

Michael Bilerman - Citigroup Inc, Research Division

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

Ki Bin Kim - Macquarie Research

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

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

Michael W. Mueller - JP Morgan Chase & Co, 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 First 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

Good morning, and thank you for joining us for our first 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, May 4, 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

I'll turn the call over to John Reyes.

John Reyes

Thank you, Clem. Our first quarter core FFO per share was $1.44 compared to $1.28 last year, a 13% increase. Five items contributed to this growth. First, our same-store net operating income increased by 6.3%, adding $0.09 per share. The non-same-store properties added $0.02. Last year's acquisition of affiliated partnership interest added $0.02. Lower financing cost added $0.02. And ancillary operations, primarily our tenant reinsurance business, added $0.01.

In the press release, we changed some of our presentation. First, we increased the size of our same-store pools to include properties that we have operated for the last 3 years at a stabilized occupancy level. For our U.S. same stores, we increased the pool by 10. For Shurgard Europe, the pool is increased by 13. We also modified our same-store expense classification to highlight other direct property costs, supervisory payroll and allocated overhead. Other self-storage companies may include some or all of these cost synergies in their G&A expenses. While we modified the presentation, we did not change what is included in our same-store expenses.

We completed several capital transactions in 2012. We issued $923 million of preferred securities with a blended rate of 5.8%, and redeemed $833 million with an average rate of 6.7%. We had about $4 million of negative carry in the first quarter associated with these issuances. In addition, on July 2, we will redeem $173 million of our 7% Series and preferred stock. We expect to record an EITF charge of approximately $5.4 million in the second quarter. Assuming no further issuances, preferred dividends are expected to be about $7 million lower in the second quarter as compared to last year. Our weighted average preferred coupon is now 6.3%.

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

Ronald L. Havner

Thank you, John. First quarter benefited from solid demand, resulting in higher occupancy and better pricing. Our same-store movements were up 2% year-over-year, offset in part by higher move-outs of 5%. At the end of April, occupancy, in-place rents and asking rents were all higher than the same period last year despite lower media spend for the period. In Q1, all of our markets achieved positive revenue growth. Dallas, Denver and Detroit markets led the country with revenue growth over 7%. The Miami market was second at 6.3%. Los Angeles, our largest market, grew 3.5%; and San Francisco, our second-largest market, increased revenues 6% for the quarter.

Given these positive trends in occupancies and rates, we expect our Q2 media spend will be comparable to last year. In Europe, same-store rental revenues were flat to last year, as higher realized rents were offset by lower occupancy. We did improve the year-over-year growth occupancy gap from 1.2% at the end of the year to 0.7% at the end of March. Operating expenses were lower, resulting in NOI growth of about 1%. We continue to expect a challenging operating environment in Europe for the remainder of the year. During the second quarter, we entered into contracts to purchase 4 facilities with about 300,000 square feet for $46 million.

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

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Christy McElroy with UBS.

Christy McElroy - UBS Investment Bank, Research Division

Just looking at your occupancy trends, in Q4, you averaged 90.2% and then ended the year at 89.6%. So a natural sort of seasonal trend toward year end. But then this quarter, it looks like you were able to reverse course pretty early in the year and actually show a 10 basis point increase average occupancy in Q1 versus Q4, which is pretty abnormal in this industry. You've talked in the past about possibly trying to reduce some of the seasonality in occupancy during the slower months. So I'm wondering, is this Q1 trend reflective of that? And if so, maybe you can provide a little color on your efforts on that front.

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