Public Storage Management Discusses Q2 2012 Results - Earnings Call Transcript

Public Storage (PSA)

Q2 2012 Earnings Call

August 03, 2012 1:00 pm ET


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


Christy McElroy - UBS Investment Bank, Research Division

Michael Bilerman - Citigroup Inc, Research Division

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

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

Gaurav Mehta - Cantor Fitzgerald & Co., Research Division

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

Neil Malkin - RBC Capital Markets, LLC, Research Division

Todd Stender - Wells Fargo Securities, LLC, Research Division

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

David Harris - Imperial Capital, LLC, Research Division

Jordan Sadler - KeyBanc Capital Markets Inc., Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division



Good afternoon. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Public Storage Second Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. Thank you.

I would now like to turn the call over to Mr. Clem Teng to begin. Please go ahead, sir.

Clemente Teng

Good morning, and thank you for joining us for our second 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, August 3, 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 the audio webcast replay of this conference call on our website at

I'll turn the call over to John Reyes.

Edward John Reyes

Thank you, Clem. Our second quarter core FFO per share was $1.62 compared to $1.43 last year, a 13% increase. Five items contributed to this growth. First, our same-store net operating income increased by 8.3%, adding $0.12 per share. Our non-same-store properties added $0.03. Last year's acquisition of affiliated partnership interests added $0.02, lower financing costs other added $0.04, ancillary operations, primarily our tenant reinsurance business, added $0.01. Partially offsetting this was $0.03 per share from lower interest income.

We completed several capital transactions in the second quarter. We issued $288 million of preferred securities, with a rate of 5.625%, and called for redemption $416 million, with an average rate of 6.7%. Assuming no further reissuances, preferred dividends are expected to be about $8 million lower in the third quarter of 2012 as compared to last year.

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

Ronald L. Havner

Thank you, John. The second quarter benefited from solid demand, resulting in record-high occupancies and higher realized rents. In Q2, we reduced media spend by 44% or about $1.5 million, as well as promotional discounts.

Net customer acquisition cost declined as customer move-in volumes remained constant despite lower media and promotional discounts. At the end of July 2012, occupancy, asking rents and in-place rents were all higher than the same period last year.

In Q2, Denver and Charlotte markets led the country with revenue growth of 8.7%, followed by Miami and Detroit at 6.6%. Los Angeles, our largest market, grew 4.4%; and San Francisco, our second largest market, grew -- revenues increased by 6.2%.

Given the trends in our occupancies and rates, we expect our Q3 media spend will be comparable to last year. In Europe, same-store NOI improved by 2% despite a challenging operating environment.

We recently completed the purchase of 5 facilities with about 377,000 square feet for $52 million. We're currently under contract to acquire 2 more facilities for about $30 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 of UBS.

Christy McElroy - UBS Investment Bank, Research Division

Just in regards to Europe, your occupancy has slipped a little bit overall even from Q1, but you've still been able to see some decent growth in realized rents. I'm wondering if you could talk a little bit about your overall revenue management strategy there, and what makes sense, sort of given the different environment you're operating in versus the U.S.

Edward John Reyes

Christy, last year, we had some really aggressive promotional discounts in a couple of markets, which we did not do this year because the -- we kind of didn't get the benefit in terms of rate and promotional discounts versus move-in volume, so we've moderated those this year. So you've seen some degradation in occupancy and an uptick in the in-place rents and the rental revenue and lowered promotional discounts. And that varies by market, and the operating results, vary greatly by market, were on a revenue-growth basis. France was down 1.6% on same-store basis, whereas the U.K. was up 3.5% and Belgium was up almost 7%. So it varies by market. So what you're seeing is a blend, but the big picture is better pricing and reduced discounts this year with some impact on move-in volume.

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