Public Storage (PSA) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Shurgard Storage Incorporated second quarter 2005 earnings release conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded, Wednesday, August 10th, 2005.

I would now like to turn the conference over to Mr. Dev Ghose, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. Good morning, good afternoon, and good evening to those joining us from Europe. Thank you for joining us for Shurgard Storage Center's second quarter 2005 earnings conference call. I'm Dev Ghose, CFO for the Company. With me on the earnings call today are Chuck Barbo, Chairman and CEO; Dave Grant, President and Chief Operating Officer; Harrell Beck, Executive VP and Chief Investment Officer; Steve Tyler, Senior Vice President of Retail Sales; and Steven De Tollenaere, Managing Director of Shurgard Europe.

Before we start, I will read the required forward-looking statement, which is: The statements made on this call concerning the beliefs, expectations, intentions, future events, future performance, business prospects, business strategy, and earnings guidance for 2005 and beyond constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act and are based on several assumptions. If any of these assumptions are not satisfied or proved to be incorrect, actual results could differ materially from those indicated in the forward-looking statements.

For a discussion of additional risks and other factors that could affect these forward-looking statements and Shurgard's financial performance, please see Shurgard's annual report on Form 10-K for the year ended December 31st, 2004, which we filed with the SEC on March 29th, 2005; form 10-Q for the quarter ended March 31st, 2005 that we filed with the SEC on May 10th, 2005; and Form 10-Q for the quarter ended June 30th, 2005 that we filed with the SEC yesterday.

I would now like to cover some brief highlights of the second quarter. Revenues were up nearly 15% to 120 million, and 234 million compared to 104 million and 204 million for the 3 and 6 months ended June 30th, 2004. For the three months ended June 30th, 2005, we had a net loss of 693,000 compared to net income of 20.8 million for the three months ended June 30th, 2004.

The second quarter was hurt by approximately 5.2 million in noncash foreign exchange charges. Most of these costs will not recur in the future, as a result of our recent acquisition of Fremont's interest in Shurgard Europe.

The second quarter 2004 was helped by a $12 million gain on the sale of certain nonstrategic assets. For the six months ended June 30th, 2005, net income was 4.6 million compared to 20.5 million for the six months ended June 30th, 2004. Funds from operations, or FFO, a key metric for real estate investment trusts, for the three months ended June 30, 2005 was 15.4 million or $0.33 per share, versus 24.5 million, or $0.53 per share for the three months ended June 30th, 2004.

The following is a quick reconciliation between the second quarter 2004 and 2005 funds from operations. Quarter-over-quarter, we had strong growth in net operating income after indirect expenses. This resulted in an increase of approximately $0.15 per share in FFO. This increase was offset by the following four primary factors: Firstly, foreign exchange and derivative losses of approximately $0.12 a share. Substantially all of this will not be incurred in the future. Secondly, higher borrowing costs of $0.09 a share from fixing variable rate debt in Europe, higher interest rates, and modestly higher additional borrowings. Thirdly, higher real estate development expenses of $0.04 per share, mostly from Europe. And then lastly, higher G&A costs of $0.07 per share. Of this amount, $0.03 per share is from the Shurgard Europe restructuring that we announced earlier, while the balance relates to higher external ordered tax and SOX compliance charges.

With regard to our FFO projection for the year ending December 31, 2005, we now expect FFO for the year to be in the range of $1.90 to $1.95. This guidance is adjusted for the following five items: Foreign exchange losses through June 30th, 2005; dilution from the purchase of Fremont's interest in Shurgard Europe; restructuring charges for Shurgard Europe announced earlier; higher noncapitalized real estate development costs; and then higher G&A costs for SOX compliance and higher interest costs. Our FFO projection for 2005 does not include costs that may be incurred related to the recent merger proposal.

At this point, I'd like to turn the call over to Dave Grant for further color on our quarterly results.

Thanks, Dev. Good morning everybody.

I, as Dev mentioned, will go through some additional highlights in specific parts of our business for the second quarter. After I'm done with those comments, I'll be turning it over to Chuck Barbo, who will discuss in some detail the unsolicited proposal that we received to merge the company with Public Storage recently. And as usual, after Chuck's comments we will open it up for question-and-answer.

The four main areas that I'd like to talk about regarding the second quarter will be, first, store operating results; real estate investment activities; our financing activities; and specifically this time, our company overhead costs, which is obviously a topic of high importance to everybody and I'd like to do some additional elaboration on our thoughts there.

Before I go into the details, just a few of the take-aways I would make about the quarter. This quarter was marked by strong results for our core operating stores, both in the U.S. and Europe, that we're very pleased about. The Fremont acquisition previously announced, which will now allow us to embark on full integration of both the U.S. and European companies. Significant progress we've continued to make on our systems and internal control upgrades.

So let's take a dive into the store operating results first. If we look on a consolidated basis, as I mentioned before, we're very pleased both domestically and in Europe with the results. Clearly the initiatives that we have implemented over the past 12 to 18 months are beginning to bear fruit, as we had expected. The consolidated revenues were up for the quarter 15% over the prior year, and also up 15% over the first quarter of this year.

If you look at the same-store pool, which on a combined basis represents 540 stores in our portfolio, they were up collectively revenue-wise over 7% for the quarter over the prior year. This is both a combination of occupancy and rate gains. Average occupancy with combined group moved from about 82.5% to just under 85%. And same-store NOI rose in excess of 6%. Now, this pool of assets accounted -- the NOI after indirects accounted for 97% of the total NOI that our store groups generate.

The new store pool, which represents over 17% of the total portfolio cost, generated only 3% of this NOI and had an average occupancy of just 58% during the quarter. Obviously, we're very excited about the remaining upside that these assets represent, and they will be playing a big part in contributing to our NOI growth as they continue to lease out.

If we look a little more specifically now by segment, at the U.S. first, we saw continued strong revenue gains for the U.S. store group. Revenues up over the prior year 5.9%. This is a combination of a one percentage point gain in occupancy from 85 to 86% over the prior year, and a just under 4.5% gain on our average rate collected.

If you look across all of our U.S. markets, demand has been fairly consistently solid across the board. I'd note a couple of exceptions: our Detroit market and our Houston market in particular are experiencing soft demand relative to the group. On the flip side, our stores in the Florida and Carolina markets continue to lead the pack from our standpoint and continue to show unusually strong revenue and occupancy growth.

If we move on and look at our direct expenses, they were for the most part in line with what we had expected and been forecasting. The one notable item I would mention is we had about a 10% lift year-over-year in our real estate costs. Some of you that may have listened in on prior calls from the prior year, we had several quarters where we actually had flat or declining real estate tax expenses in 2004 as a result of tax appeals and refunds that helped to kind of exacerbate that increase this year. That increase represented about 40% of our total direct cost pickup.

Our indirect expenses are up 34% over the same quarter a year ago. This goes back to the initiatives that we started at about that time to bring in additional field and marketing personnel to help drive our revenue growth as we're now seeing. If you remember, this was something we pointed out in our Q4 earnings call for last year, where most of these costs started to show up. We are predicting that our run rate for these costs are now stabilized, may actually show some decline. We did have some nonrecurring recruiting costs of some last key positions we filled during the quarter, but we expect it to basically remain consistent going forward.

And finally, in summation, the NOI after indirects was up 3.5% and this is very much in line with our original projections and forecasts.

As we look forward for the U.S. markets, we continue to see an acceleration in momentum through July. The rate movement and occupancy movement have continued to move upward. This being our busy time of year, that's not so unusual, but it has shown a pattern above the average that we typically get for this time. And occupancy, by the end of July, was up to about 87%. And we're confident at this point that the forecast we've made for the year for the U.S. stores will continue to hold up well through the balance of the time.

If we may now move on to our European same-store group, where we have 96 stores in the pool, we're very pleased with the milestone our group achieved there this past quarter where this collection of storage for the first time achieved end-of-period occupancy of 80%, and this is a substantial pickup, frankly, throughout the first six months of this year. If you recall, we had an average occupancy for the first quarter of around 73%. It was up to just under 78% for this quarter. And end of Q1 we were 75 and moved up to, as I say, the 80s. Notably France at 86%, and Denmark, 89, are the strongest in that group.

This was accomplished through a combination of a lot of things that we normally do, including marketing activities, but in particular, a more aggressive, more focussed rate management has been a big contributor. And in certain markets like the Netherlands, where we have constrained the amount of new supply that we're bringing online, this clearly helped to allow these stores to pick up pace. And consequently, our same-store revenues were up 11% over the prior year, and really all markets turned in good solid performances. I'd say the only market that we were not happy with was the U.K. market. You may remember that the U.K. market was our strong -- or strongest -- market last year, and we saw softening occurring in the fourth quarter last year as the housing demand in London, which is where all of our stores are based, clearly had cooled off and that was reflected in occupancy and demand struggles through the first half of this year.

At any rate, total revenues staying up that high helped to drive our NOI for that group up almost 22%. A comment I'd like to make beyond that, and this gets into some of our overhead and platform costs, you'll notice that our indirect costs continue to be high in Europe. As reported, they were 17% ahead of the prior year and represent a cost run rate of almost -- over 12% of same-store revenues.

Now, this is not a level that is sustainable, it's clearly too high to us, and now that we have managed to get to a sufficient size in Europe, and more importantly, now have the ability to integrate the two companies, the U.S. and Europe, we've been able to launch the integration process and cost-cutting that we can clearly take advantage of. This is something we announced and started back earlier in the second quarter. And our plan calls for us to drive that level of indirect cost down to a rate of 6%, which is a much more logical stabilized running rate, we believe, for the European group, by the fourth quarter of 2007. Naturally, I expect as the system continues to grow and as sufficiencies continue to be harvested, we would expect those numbers to decline even further. And this process is well underway.

And I would also like to make a couple comments about the new store group over in Europe, which is also a significant part of the portfolio, being 43 stores over there. They also had strong rent up gains during the period. When you take our entire group of 139 stores collectively during the first quarter, we brought on almost 5,000 new customers net, which represents -- brought us to a total in excess of a 64,000 customer base. And we obviously keep very close tabs on this count because this is the single fastest way for us or anybody to build awareness in our product, is through the use of it by customers.

As we look forward, we continue to see these occupancy momentums continuing. We saw the same-store pool for Europe move up to over 81%, and this was actually in a backdrop of firming prices with showing an increase now in rates during the month of July. We see nothing on the horizon that would say we shouldn't expect to finish out the year strongly at the pace we're currently on.

So that's it for the operating side of the business. If we take a look at real estate investment activities during the quarter, we put in service over $70 million of self storage assets on a global basis. We opened four new stores in Europe during the quarter for a total value -- with a total value of approximately 27 million.

We opened no new stores in the U.S. during that period, but shortly after the quarter, we opened a store we're particularly proud of, for those of you familiar with San Francisco, the Presidio area, which is manage by a public trust now, selected us to be their self-storage operator serving a very great high barrier entry of downtown San Francisco. That has taken off with a flying start.

On the acquisition/disposition side during the quarter, we acquired nine stores, all of which were in the U.S. Two in Florida, six in North Carolina, and one in California, for a value cost of about 41 million. These stores fit very well into all of our existing networks and are in markets that we're very focussed on for long-term growth.

On the flip side, during the quarter, we actually sold no stores, but shortly thereafter in Q3 sold three nonstrategic stores for proceeds of a little under 11 million, with a gain of about 5 million reported. Mainly these -- two of these stores were in the Spokane, Washington market that we have decided to exit as it's not a cost-effective place for us to manage. And as I say, we will continue to focus our growth on the core markets that we are in and continue to move out where we have nonstrategic assets.

We currently have 16 new stores under construction or pending construction. Seven of these are in the U.S. and nine are in Europe and represent a total estimated cost at completion of about 114 million. As mentioned previously, we did also acquire the interest of the Fremont Group for about $97 million, giving us the full control of that as we previously mentioned.

Finally, on the redevelopment front, which is a focus area for us in the U.S., we continue to be very pleased with the progress we're making there. We had four projects in the U.S. completed during the quarter, and we have seven that are currently underway, representing an investment of about 11 million.

What I like about our portfolio in particular, given how it has accumulated over over a span of 30 years now, there are just numerous opportunities to continue to identify accretive investments within our existing fleet. If you think about it, our average store that we build up through, really the late '90s was on about an average of 4 acres of ground for a typical size site. Today we would build that same store in a high-rise fashion, would typically be on one to two acres of ground. So it leaves us a lot of opportunities as we go forward, and as we have the time to focus on this initiative. And as a byproduct of that, you're also getting an improvement in the image and the consistency of the brand.

In general, I believe the vast number of markets that we are active in, along with the wide variety of how we can invest or divest to create value, gives us great options and flexibilities for the long-term future.

On the financing front, we increased our term note from 150 to 300 million during the quarter and extended the term through February of 2008. As a result, we had approximately 90 million of additional capacity under a line of credit as of the end of the quarter. And Europe, as you know, we have sufficient equity and debt commitments through our joint ventures to finance our expansion plans there through the end of 2006.

Strategically, we will continue to recycle capital, partially through the selective sale of nonstrategic assets as long as the markets clearly show the appropriate demand level. And similarly, we will also look at recycling larger blocks of properties where we would continue to maintain an interest through some form of joint venture.

Finally, if I move over to the overhead and G&A category that I mentioned earlier, it goes without saying our G&A costs we're incurring are too high. So I'd like to talk a little bit about how we're going to get them down to an acceptable level.

So let me start, being clear about where we're currently at. We reported total consolidated G&A costs for the second quarter of almost $11 million. As discussed in our first quarter call, we still expect 2005 G&A to be somewhere in the range of what we experienced in '04, in the 33 to $34 million level.

Now, Q2 is unusually high compared to what we incurred in Q1 of this year, as well as what we expect in the balance of the year. Partly because we took all of the restructuring charges, 1.3 million related to our work we've begun in Europe, as we previously announced, as well as we're going through a period of what I would call double SOX cost, SOX being Sarbanes Oxley. The finishing up of our 2004 assessments and testing, while at the same time, we are well into our 2005 assessment and testing process as well.

The total G&A run rate represents a level that is about 8% of consolidated revenue. Our expectation and plan is that G&A costs will be down to a run rate of about 4% of revenue by the fourth quarter of 2007. And naturally, we expect this stabilized rate will be a little higher than if we were running on a purely domestic basis, just given the fact that we are operating in seven foreign countries and dealing with the complexities of operating a business there. However, I do expect the business to continue to get more efficient on all levels as we move forward, because clearly the G&A structures that we are building and have, we have the capacity to continue to handle substantial growth.

So how are we going to get there? First of all, our annual, consulting, auditing tax and SOX compliance costs will be almost $11 million this year by our current forecasts. Once we get our internal control infrastructure fully up and running and SOX certified, we expect a substantial reduction in these costs. Obviously, audits are done on an annual basis and do not go away, just as the SOX certification process is. But there is no question, the effort and the money we are spending and have spent will make us much more capable of running an efficient certification process year in and year out.

As we get to the second half of 2007, it's our expectation that that $11 million run rate will be down -- that we're currently experiencing will be down to a level of about 3 million. Obviously that's a significant reduction in our expectation target right there. The remaining G&A savings we expect to pick up in this round between now and the end of '07 will come from the integration of our overhead structures between the U.S. and Europe, in a somewhat similar parallel to our work on the indirect costs there that I had mentioned previously.

So in summary, we're very pleased with the core operating results our teams continue to produce and feel they have validated our customer and marketing strategies. We have now removed all of the structural and ownership impediments to make our business more simple, flexible, and efficient to manage. And while we have not finished on our internal control upgrades, we've made great progress. The key people are in place and our path to completion is very clear.

We're finally very pleased with the most important part, I think for any business, which is our strategic position for the future, and we believe we can capitalize on above average growth opportunities for many, many years to come.

So with that said, I'm going to now turn it over to Chuck to talk a bit more about this recent proposal we received from Public Storage, and I'd also mention that we have prepared a more in-depth presentation regarding this that can found on our website at www.shurgard.com.

Chuck, I'll turn it over to you.

Thank you, Dave. Good afternoon everybody.

As you know, we recently received an unsolicited proposal to merge Shurgard with Public Storage in a taxable stock for stock transaction. After careful consideration and with the assistance of our legal and financial advisers, the Board unanimously concluded that the proposal was not in the best interest of our shareholders. In our responsive letter, we informed Public Storage of our board's decision and also indicated that Shurgard was not for sale.

I want to assure you that the management and the Board of Shurgard are fully committed to acting in the best interest of our shareholders. Over the last 30 years we have built an impressive portfolio of properties unique to the industry and one that cannot be replicated. And we are just now beginning to see our recent timely and prudent investments bear fruit and we remain very enthusiastic about our prospects.

To be clear, we did not solicit offers to buy the Company. There was no process to sell Shurgard. The Public Storage approach was unsolicited and purely on their on volition. And while we are convinced that our current strategic plan will deliver superior long-term value to our shareholders, we and our board are fully aware of our fiduciary duties, and we will evaluate and seriously consider alternatives to that plan in the future just as we have in the past.

Our decision to reject the Public Storage proposal was based on many factors. However, fundamentally, we believe that the proposal is good for Public Storage, but bad for Shurgard. And, therefore, our board decided not to pursue it. Let me explain why in more detail.

We are undervalued from a fundamental perspective and we're also undervalued relative to Public Storage. Given our unique portfolio of assets, the timing and the development cycle of those assets, particularly Europe, and with our higher growth rate, an exchange ratio of .8 shares significantly undervalues Shurgard, both from an absolute as well as a relative perspective. This undervaluation is good for Public Storage, bad for Shurgard.

In addition, if you consider the timing of this proposal in relation to the relative values of Public Storage shares and Shurgard shares, it is the best time in history for Public Storage to make this proposal. Never before has our market valuation compared to Public Storage been this low. We are not here to make decisions based on the spot market that helped Public Storage, we are making decisions that build significant long-term value for our shareholders. Their timing is clearly opportunistic. Again, this is good for Public Storage, bad for Shurgard.

And the fact that the proposal contemplates a fully taxable transaction adds another unattractive element to the Public Storage proposal. A taxable transaction means our shareholders receive less value after tax, moreover, it means that many of our shareholders will be forced to sell shares in order to pay taxes. Simple math tells you that the Public Storage is asking our shareholders to bear 100% of the burden of a taxable transaction, while only receiving 23% of the benefit. Again, this is good for Public Storage; bad for Shurgard.

And lastly, we have been very focused over the years on returning capital to our shareholders through dividends. The current proposal would result in Shurgard's shareholders suffering a nearly 30% reduction in their current dividend. This reduction is even after factoring in the dividend increase recently announced by Public Storage. This again is good for Public Storage; bad for Shurgard.

Let me reiterate. We and our board are convinced that we have a unique portfolio of assets that cannot be replicated. We enjoy an exceptionally strong market position and have the only international platform in the entire self-storage sector. We are enthusiastic about our prospects and believe the current plan will deliver superior long-term value for our shareholders. Our company is just now beginning to realize returns from our timely and prudent investments in Europe. And as Dave outlined earlier, our global cost-cutting initiatives are well underway and provide an additional source of value. In addition, we remain focussed on returning capital to our shareholders through dividends which are supported by increasing and sustained cash flow.

Now is not the right time to sell. This is not the right deal. The current proposal is good for Public Storage; bad for Shurgard. However, I will reiterate what I said before: we and our board remain committed to acting in the best interest of our shareholders. We understand our fiduciary duties. And we will always, in the future, as we have in the past, carefully consider credible alternatives.

Thank you very much, and Operator, now we will accept questions.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS]

First question comes from Jay Leupp with RBC Capital. Please go ahead.

Thank you, good afternoon. I'm here with [inaudible] Johnson. Chuck, just following up on the comments that you made, during the Board deliberation process, what were the Board's thoughts on the potential 20 to 30 million of potential cost savings if the two companies were merged, as well as marketing synergies? And if the two companies were able to potentially work together to put together a tax-free transaction, do you think that there would be a likelihood that the Board would approve this proposed merger?

Well, Jay, the -- what we received is what we received. The proposal that we got from Public Storage was very detailed, and so I can't speculate as to what we may or may not do regarding what they may or may not do in the future.

As to the question of the cost synergies --

-- the overhead costs that you mentioned, obviously, I think it's common knowledge anytime you build your platform larger, you've got an ability to gain synergies. We certainly get the same benefit as we build them as well. It's the same thing I'm talking about with the integration of Europe.

What's clearly not appropriate is to seed the G&A synergies and indirect cost synergies that we can clearly achieve on our own. And as I outlined during the presentation, we have a significant amount of cutting we will be able to accomplish.

Okay. And then secondly, did the Public Storage offer catalyse any other potential business plan changes in your operating plan going forward, things like maybe accelerating asset sales to purchase more stock or delaying or postponing expansion plans into other markets?

No.

Thank you.

Thank you. Your next question comes from Paul Adornato with Harris Nesbitt. Please go ahead.

Hi, kind of a follow-up to Jay's last question. That is, given the events of the last couple of years and the statements today that it might take another two years or so until a lot of the cost savings are actually implemented from the restructuring and recasting of the internal control systems, what can you give to shareholders or point to shareholders to let them know that -- to demonstrate that we're on the right track and that we -- our patience will not have been in vain?

Good question. I think that if you remember back to, frankly, as far as a year ago, on quarterly calls when we've talked about this issue, I think I made it very clear that to do what we needed to do to get us on the right footing, to properly -- to have a world-class accounting and financial reporting group, capable of handling a global platform, was going to not be an overnight fix. And I've consistently said that would be about an 18-month process. That's very much the track that we're on.

In this time, I've been very focussed on bringing in the right people, rebuilding the group from the bottom up. We've had to increase the capacity and the capability of the European staff to be fully knowledgeable about U.S. GAAP, which is something that anybody operating on an international basis would need. You're dealing with becoming Sarbanes-Oxley compliant across eight countries, and doing it with people that are very new to the job, unfortunately, which is a part of the rebuilding.

So it causes you to have a bit of a rocky road getting from point A to point B. It's definitely a journey but I'm very pleased with the progress we've made. The systems that we've put in place address a lot of the issues that have already been identified, things like automated consolidation package systems that were put in in December last year.

So I feel we're very much on the plan that we've talked about. I think that we will definitely get through major milestones as we come into the testing certification process for '05, and that's what gives me the confidence that we will be able to bring these costs down as significantly as I've described.

And last year, you embarked on a strategy of undertaking less development in order to boost NOI growth. Where are we in terms of that process? Do you believe that the level of development is one that you're comfortable with or should we expect more or less than the run rate?

Good question. We have been adding stores at a rate of about 25 a year in Europe during the '02, '03 time frame. And as we -- as I mentioned on previously calls, our number 1 concern was to build infrastructure and sufficient platform of stores in the key markets to operate efficiently. We talked a lot about cost-effective management.

If you've only got one store in Rotterdam or one store in Amsterdam, you are not operating efficiently at a labor level, marketing cost level, or any other. So getting up to levels of having networks of 5, 10, 15 stores is critical. And that's what was part of our thinking in the original drive to grow at that pace.

Now, with us being at about 140 stores and -- in Europe in these key markets, we've got more of the luxury to be selective about the pace that we add stores, based on how we see the demand in the stores that we've got. That's what really caused us to back off, particularly in the Netherlands over the last couple of years.

And so as we go forward, I think you'll continue to see us probably be in the neighborhood of 15 to 20 stores, but again, we will be opportunistic. As we see both the real estate markets and demand work to our favor, we will move that level up.

Okay. Thank you.

Thank you. Ladies and gentlemen, [OPERATOR INSTRUCTIONS] Our next question comes from Arie Hurt with Lawrence Partners. Please go ahead.

Yes, hi. Management has pointed out the faults of the Public Storage offer, and, therefore, in the interest of shareholders has deemed it inadequate. But I want to know, wouldn't it be in the interest of shareholders for management to at least talk with Public Storage and see if this seems to be a credible bidder, if shareholder value could be created here?

Well, excuse me, we have been down this road with Public Storage several times before, and we did meet with Public Storage at their request in July. And we listened opened-mindedly to what they had to say. And then they followed that up with a specific offer. And we responded to that specific offer.

If we were to receive a legitimate offer from any third party, we would bring the offer to the Board through consideration just as we did this most recent PS offer. If the Board determines that we should pursue an offer, then they will instruct us to do so. They did not do so.

So we -- thus far, we have not received an offer, anything else from PSA, and so we will continue to implement our long-term business plan for the benefit of our shareholders. We think that's the best course.

Okay. Thank you.

Thank you. [OPERATOR INSTRUCTIONS] And our next question comes from David O'Connor with High Rise capital. Please go ahead.

Good morning.

Hi, David.

I wonder if you can clarify something for me. And as you can imagine, I've read lots and lots of material in the past week or so, and there is one statement made, and I'm assuming at this time that the press release which Public Storage issued, which enclosed a copy of the letter that you, Chuck had written to Ron Havner, is accurate. The segment that I'm referring to says, "The Board unanimously decided that the Company is not for sale, which I take as a statement of fact, and, therefore, rejected your proposal."

And as I read even the supplemental package, which is now available on the website, as Dave mentioned, the verbiage seems to be different from that. And I'm wondering, what is it that you're telling the world? What is it that the Public Storages of the world should assume? That if they offered a thousand dollars per share, the Company's not for sale? Because a statement of fact like the one written in your letter would infer that.

And I'd like you to respond to the other terms of their proposal which you don't deem to be sufficient.

Well, David, we did not set up a process to sell the Company. The -- and we have always said that our Company's not for sale. However, we are mindful of our fiduciary duties to our shareholders and we're always willing to listen to any ideas that might further those shareholders' value. As such, we would bring any legitimate proposal before the Board for a thorough consideration, just as we did with the most recent PSA proposal. However, we are not soliciting or encouraging proposals to acquire Shurgard. But obviously, we understand what our fiduciary responsibilities are.

You know, I don't really want to get into a conversation specifically about every aspect of the Public Storage proposal, because in its entirety, it was deemed inadequate and not in the best interest of our shareholders. And so there's lots -- I mentioned a couple of things but there's lots of parts of it that are inadequate. I mean, we believe that our unique position in Europe, for example, which is being -- in my opinion, very much undervalued by the market at this time -- is an incredible asset and has great value for the future and has great growth rates.

So there's just a lot of things about it. But in total, it was just deemed inadequate.

Well, I've read lots of Shurgard proxies, and lots of Shurgard annual reports. The last proxy denoted that approximately 94% of the shares are owned by nonexecutive nondirectors of the Company. In none of those documents have I ever read that Shurgard is not for sale. And if I had known that earlier, I might have had a different opinion of my position of the Company. This is a publicly traded company and that term is one that I take umbrage to.

Well --

You can argue on the merits of bids and whether they're worth accepting and I happen to agree with you on many of your points, but the letter that was initially not exposed to the light of day has a very pointed statement in it, which -- I can't understand how the independent directors of this firm justify it.

Well, I can assure you that the independent directors of this company fully understand their fiduciary responsibility to shareholders. And they would evaluate and consider any proposal that came from anybody. And we've always done that in the past, we will always do that in the future and it's -- who knows what would happen if they were to get some. I don't know. We can only deal with what's on the table.

Why was an independent committee not formed to evaluate this?

Well, the -- our legal advisors and the board of independent directors themselves felt that it was not necessary at this time.

Thanks very much.

Thank you. Our next question comes from J.D. Hoffman with HP, LLC. Please go ahead.

Yes, thank you. Just who are your legal and financial advisers?

Our financial advisors are Bank of America and Citigroup.

Yes.

And Wilkie Farr in New York and Perkins Coie, our legal counsel here in Seattle.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] And at this time I show no further questions. I'd like to turn the conference back over for any concluding remarks.

Thank you very much, Operator. Thank you, everybody, for joining the call.

Ladies and gentlemen, this concludes the Shurgard Storage Incorporated second quarter 2005 earnings release conference call. If you'd like to listen to the replay of today's conference, you may dial (303)590-3000, or 1(800)405-2236 and you will need to enter the access code of 11036785 followed by the pound sign.

Once again, thank you for participating in today's conference and at this time, you may now disconnect.