Public Storage (PSA) 2006 Q2 法說會逐字稿

Welcome to Public Storage's second quarter earnings conference call. Today's call is being recorded and will be available later for replay. The dial-up number is 877-519-4471. You can enter pin number 7661950. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to Mr. Clem Teng, Vice President, Investor Services. Sir, you may begin.

Good morning and thank you for joining us for our second quarter earnings call. Here with me today are Ron Havner, CEO; John Reyes, CFO; John Graul, President of Self-Storage Operations; and David Doll, President of Real Estate Operations. 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, then return to the queue for any follow-up questions. Before we begin I will provide the forward-looking statement warning.

All statements other than statements of historical facts included in this conference call are forward-looking statements. All forward-looking statements speak only as of the date of this conference call and Public Storage undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except as required by law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Public Storage's control, that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements.

In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of Public Storage made on this conference call are also subject to, among others, the approval of the proposed merger with Shurgard Self-Storage Centers Inc. by the shareholders of Shurgard and Public Storage, the difficulties encountered in integrating Public Storage and Shurgard, the satisfaction of closing conditions of the proposed merger, the inability to realize or delays in realizing expected synergies from the merger, any unanticipated operating costs, the risks associated with international operations, and the effect of general and local economic and real-estate conditions.

Additional information about risks and uncertainties that could adversely affect Public Storage's forward-looking statements are described in the Company's reports filed with the Securities and Exchange Commission including our 2005 annual report on Form 10-K, our current report on Form 8-K, our joint proxy statement prospectus on July 24, 2006 and our other SEC filings after the 2005 10-K.

We will also provide certain non-GAAP financial measures. A reconciliation to GAAP of these non-GAAP financial measures is included in our press release which can be found at our website at www.publicstorage.com. As a reminder our press release and an audio webcast replay of this conference call are available at our website and complete financial information will be available in our second quarter Form 10-Q which will be filed shortly with the Securities and Exchange Commission. Now I will turn it over to John Reyes.

Thank you, Clem. As reported yesterday we achieved solid second quarter operating results. Our funds from operations increased to $0.99 per share, compared to $0.90 per share for the second quarter last year, representing an increase of 10%. The increase was primarily driven from improved same-store operations which provided $0.05, newly acquired and development facilities added $0.02, and greater interest income from higher interest rates and higher cash balances provided $0.02.

Our same-store facilities continued their strong operating performance. Revenues for these stores grew by 5.7% driven primarily by an increase in rental rates while occupancies remained stable at 92.1%. Operating expenses increased by 7.4% for the quarter and our net operating income increased by a solid 4.8%. Our balance sheet remains solid with a cash balance at June 30, of just under $1 billion. We expect to utilize the bulk of this cash to finance the cash requirements of the proposed merger with Shurgard.

During the third and fourth quarter we have the opportunity to redeem two series of our preferred stock totaling 650 million. EITF D-42 charges associated with these redemptions would be about $22 million. No decision has been made as to whether to redeem some or all of these securities. Similarly, PS Business Parks may redeem high coupon preferred stock in the third and fourth quarters and our pro rata share would be approximately $1.4 million. With that I will now turn it the over to John Graul.

Thank you, John. As John Reyes mentioned, the same-store operating expenses increased by 7.4% from the second quarter in 2005. There are a few key areas that caused this increase. Last year's hurricanes caused property insurance to rise, and these rates -- rate increases went into effect when our insurance renewed on April the 1st. Further, utility expenses have been negatively impacted by higher energy costs.

We expect that both these trends will continue for the remainder of the year. We experienced higher repair and maintenance costs in a couple of markets during the quarter to address some deferred maintenance issues. Overall we expect R&M expenses to be modestly higher in 2006 than in 2005.

Payroll increased as we had to pay higher wage rates for certain job classifications because of a tight labor market in several areas of the country. We also experienced higher overtime hours due to understaffing issues. We do not expect payroll expenses to experience this level of increase for the remainder of 2006.

Now moving to the Shurgard merger. Our focus this past quarter has been on aligning our personnel and putting systems in place to ensure a smooth transition of the Public Storage and Shurgard organizations. These steps have included initial training for Shurgard's mid management and property level personnel, preparing our financial and technology systems to include the Shurgard properties and restructuring the field organization to integrate the 2000 properties into a single operation.

In summary, while there will always be challenges with a merger this large, we are well prepared and look forward to a smooth integration of the combined operation. I will now turn it over to David Doll for his comments.

Thank you, John. Similar to the operations group, the real-estate team has taken several steps towards achieving a smooth transition of Shurgard's real-estate activities into the Public Storage platform.

We focused on three key areas. The resigning and rebranding of the Shurgard portfolio, meeting Shurgard's joint venture partners, and developing an understanding of Shurgard's current development pipeline. To date we have completed surveys of every Shurgard property and have developed a resignage and reimaging program for each site. Temporary signage has been manufactured to affect the rebranding during the initial weeks following the merger. Permanent signage will follow in the months there after.

Since Shurgard's portfolio has been well maintained we will not incur the unnecessary expense of repainting all the facilities to Public Storage colors. However, for those properties where image enhancements are needed the branded colors and striping of Public Storage will be completed in the coming months. At March 31, 2006, 107 of Shurgard's U.S. properties were in various joint venture ownership structures. We have met with each of the joint venture partners and are working with them to affect the changes necessary to manage those properties following the merger.

Finally, we have also spent time working with Shurgard's development group to understand the opportunities within their development pipeline. The existing pipeline can be easily integrated into our own development program. With that I will turn it over to Ron.

Thank you, David. We had another good quarter. Our continued focus on the three P's, people, product, and pricing, helped us achieve solid operating results. Our management team remains focused on our business and is doing a good job preparing for the Shurgard merger.

A key metric of our progress, revenue per available square foot, or RevPAF, which takes into account rental rates, promotional discounts, and occupancy, grew by 5.5% to $11.10 per square foot during the quarter primarily due to growth in realized rents. Occupancy remained stable year-over-year at 92.1%. We are well positioned to continue to grow RevPAF. In place rents at the end of June were 5.4% higher and we enjoy 20 basis points higher occupancy going into the third quarter.

During the second quarter we focused our media programs on 16 markets, versus 23 last year. This resulted in lower media spend and lower net move-ins by about 3,000 customers. Our customer acquisition costs, which is the sum of yellow pages, media, promotional discounts, and our national call center, increased slightly to $153 per customer versus $151 last year. When applied against the higher rental rates and administrative fees net customer acquisition costs improved by over $11 per customer during the quarter.

The fundamentals of the self-storage business remain solid. According to data published by self-storage data services, both asking rent and occupancies increased during the quarter, seasonally adjusted based on a survey of 6500 facilities. New development starts remain modest. We have toured Shurgard's European properties and found them to be of very high quality. We are currently developing a business plan with the European management for those operations. These properties have good upside potential, and represent about 10% of the combined portfolio. These properties will continue to be operated under the Shurgard name for now.

We have set the shareholders meeting for August 22, 2006. Following shareholder approval the merger is expected to close shortly thereafter. There will be costs associated with implementing the merger and combining operations, including significant severance and integration costs in the third and fourth quarters. We have not quantified the impact of these costs on our financial results other than what has been disclosed in the joint proxy statement. Further, most of the synergies from this merger will probably not be achieved until after 2006.

I want to thank all the Shurgard and Public Storage employees for their hard work and dedication in preparing for this merger. Dave Grant and his leadership team continue to be of great assistance. This has truly been a team effort. With that operator, let's open it up for questions.

Thank you. [OPERATOR INSTRUCTIONS] Thank you. Our first question is coming from Ross Nussbaum.

Hi this is Christy McElroy here with Ross. As you're in the market sourcing potential acquisition opportunities have you noticed that the volume of available product for sale has increased since some of the larger players in the industry haven't been as aggressive in their acquisition strategies and have you noticed any increases in cap rates in any particular class of products or geographical location?

No, Christy. We've seen the same amount of players in the market, and obviously we are still in the market looking for appropriately priced product and we'll be aggressive when those opportunities come forward.

No changes in cap rate?

No.

Thank you.

Thank you. Our next question is coming from David Cohen of Morgan Stanley.

Ron, you've spoken before about your key concern for the merger but -- is to kind of retaining the store and district managers, and I think you have some retention programs in place. Could you talk about -- more about the retention programs you have and how effective they've been and any sense of how many people will be staying and leaving?

This is John Graul what. We are doing with the help of Shurgard is monitoring on a weekly basis the turnover from the Shurgard organization, and to date we have seen nothing out of the ordinary that we would -- they would normally incur during a normal operation. So at this point, we're very satisfied where we are going forward.

Thank you.

Thank you. Our next question is coming from Jonathan Litt of Citigroup.

Hi, it's Craig Melcher here with Jon. Once you close the deal what costs are you going to be able to capitalize into the overall purchase price in terms of severance and other one-time costs at the beginning versus the -- you have the expense in your income statement?

Craig this is John Reyes. The costs that will go in the -- the cap price cost as part of the merger will be those costs that are basically directly attributed to acquiring the Company, such as advisory fees, legal fees, accounting fees, and things of that nature. And with respect to severance, and retention payments, those for the most part for people that will stay on post-merger, those types of payments will be expensed. Again, it's really things that are directly attributable to the merger, expense related to transitional-type things will be expensed.

Does that answer your question, Jonathan?

Yes.

Thank you. Our next question is coming from Christopher Pike of Merrill Lynch.

Good morning, everyone. Just a follow-up on development. I think, David, you indicated that one of the key prongs of the merger integration was to meet with the Shurgard folks and vet out development. I guess better understand that.

First off, what differences in the way in which you guys go about development may be different from the way Shurgard does? I guess just a big picture view from perhaps Ron. Some suggest that there's a short window for greenfield development over the next 18 months. Just wondering what your thoughts are on that topic and whether or not you're concerned about excess supply hitting the market when some are concerned that the absorption may not be there.

Okay. Well, you've got a whole bunch of questions in that question.

I think there's two.

But let me kind of refer you back to the information from Self-Storage Data Services.

Sure.

Basically they have indicated to us that, new development starts are modest. In terms of -- so we don't see a lot of supply coming in on a macro basis, based on information supplied by them, and I think. FW . Dodge also provides information, and their last couple of reports have been modest new supply. In terms of 18 months for greenfield developments, I'm not sure I follow that. Development lead times vary dramatically by market, both on the ability to acquire the land, get it rezoned, and get the permits, et cetera, et cetera.

The two examples that I -- come to mind are Texas, where barriers to new development are, to say the least, modest, versus Virginia and Maryland where it's mission impossible. And you're talking multiple years of development. So it varies all across the country. And in terms of an 18-month window to build new product, I don't know where you're getting that. We don't subscribe to that or know anything about that.

Okay. And how about the differences between -- with respect to what you guys do, how you do it, and when you vet through the Shurgard process?

I don't think there's material differences in the development strategies of the two organizations. And Shurgard has long been known for its development prowess. They have developed an outstanding portfolio both here in the U.S. and -- but again, I don't think there's material differences between the two organizations in terms of wanting to build quality product on a location.

And there's no, I guess, deeper land bank, or maybe the Shurgard folks a little further down the road in terms of some of the--.

We're going on question three here. So you need to get back--.

Okay. I'll get back in line.

Thank you. Our next question is coming from Michael Knott of Green Street Advisors.

Hey, guys, I'm wondering if you can just give us an update on where you're at with respect to the integration relative to where you thought you'd be when you initially announced the deal? And then also just sort of an overall time frame in terms of where you're at relative to the overall process. Are you sort of in the fourth inning? Third inning?

Well, Michael, there's a couple of things. First of all, when we first announced the transaction, I think, if you recall at the conference call, both Dave from Shurgard and we had, we said we were in the process of formulating an strategy. I would say things have gone, at least from my type, far better than we anticipated and that's really attributable to Dave and his team. Everyone has worked well together. There certainly have been differences and all that associated along the way, but it's gone far better than I anticipated.

The other thing is, the holdup with the SEC, basically gave us another month in which to affect the integration process. So anything that was slipping has been caught up now, and we're well on target. So I'm feeling very good in terms of where we are and the progress that we have made and the teamwork in terms of affecting the organization, or the combination.

Okay. That's helpful. Then can you just maybe comment on how far in the process you guys are? Are we a third of the way through?

There's a couple of phases here which David and John Graul touched on. One is the preparation up to the date of the merger, and there's certain things that you can do, and Shurgard has to continue to operate as a public company. And so there's certain things you can do up to that point, such as systems testing, preparing for systems integration, going through people, personnel, realigning districts, management responsibilities, that can be done, and then there's the post-merger, which when all that planning and decision making gets affected.

And so all the things that we have done -- can do up to the premerger announcement, we're well on track, and our plan -- I think we have a very good plan post-merger. There will always be -- things never go perfectly according to plan, but I think we have a very good plan, and we've met with the Shurgard people, so they're on board, we're on board, and so come August 23, I think we'll be ready and affect our post-merger plan.

Okay. Thanks. I'll get back in the queue for my other question.

Okay.

Thank you. Our next question is coming from Mark Binford of Goldman Sachs.

Quick question surrounding your revenue. I notice that containerized storage facilities, the NOI for that was negative. Just wondering if there's anything around that that should be noted. Is there weakness in that area?

No. I think the containerized business is at or slightly higher occupancies than last year. They do have higher fuel costs because they drive the trucks around, so the higher gas prices is impacting them, but nothing special going on there.

Okay. And then ancillary revenue side of business, was that -- what was the pickup on that?

You're talking about the sequential quarter over quarter second quarter versus the first quarter?

Yes.

The pickup is from all three of the major categories in there. Retail sales and truck rental business and tenant insurance each ticked up about $1million more quarter over quarter. Much of that is just due to seasonality going from the first quarter into the second quarter. We have much more activity happening in the second quarter, so that drives more truck rentals and more retail as well as more tenant insurance business.

Will that continue into the third quarter, then?

Well, the third quarter and second quarter are about the same. We should maybe see a little bit of an uptick but not the same type of uptick between the first and the second quarter.

Thank you.

Our next question is coming from Michael Mueller of JP Morgan.

Hi. Real quick, something technical first. The Q3 condemnation gain that you were talking about for the third quarter, will that be an FFO gain?

Mike, we will not include it as part of our FFO calculation.

Can I ask the other question now, the real question?

Yes, since that was quick.

Okay, thanks. In the past you guys have usually talked about the return trends for the nonstabilized developments. I was just wondering if you could comment on that.

Mike, I'm not sure we understand. You mean what are the yields on development?

No, no, no. In the past for example, you've said we've had 400 or $500 million of product developed that's not stabilized, the in place yield as of so and so is 5% or 6% that sort of commentary.

Well, I think if you go to the press release, go to the back there, it shows you the the nonsame-store properties, and the NOI was up quite nicely here in the second quarter. We did in the first half of the year add about $100 million of acquisitions and developments to that pool, but the NOI growth -- and the NOI growth in that pool is progressing quite nicely. I don't have here the kind of the yield at the moment where it is, but growth was quite nice.

Okay. Thank you.

Thank you. Our next question is coming from Eric Rothman of Wachovia Securities.

Now that you have completed your assessment of the resigning and rebranding of the Shurgard properties what do you think the cost is per property?

As I mentioned earlier we've completed a store by store analysis and currently our estimate to rebrand and resign all the projects is less than $23 million.

Great. Thank you very much. With respect to insurance coverage, and having seen a dramatic increase on that starting April 1, I'm curious, is the amount of coverage that you have the same, or did you actually also kind of essentially take more risk by decreasing coverage to kind of help control that cost?

Two things on that. We did not substantially change the policies, the aggregates, or anything like that. We did I think, modestly increase our deductible, and we may have touched on it. We have a reinsurance operation over here inside the Company, and even when we take a layer of the insurance, we basically charge ourselves for the commercial rate on that. So even by taking the risk, we don't reduce the expense charge on the property and casualty insurance.

Okay. Great. Thank you very much.

Okay.

Thank you. Our next question is coming from David Toti of Lehman Brothers.

Good afternoon. Just a quick question in the macro sense. Have you noticed any indications of changes in leasing velocity in markets that are characterized by slowing levels of residential transactions? For example, south Florida, Las Vegas, Atlanta, et cetera?

Well, Florida tends to be significantly impacted by hurricane volumes. So we're approaching that season. I'd rather have no hurricanes than the extra pickup, but that's a big swing item. Recall last year there were several hurricanes, so if there aren't hurricanes this year, I would expect rental rate volume to decline there in south Florida.

In terms of the housing markets around the country, it's not a metric or barometer that we keep tabs on. You've mentioned Atlanta. Atlanta is a very strong market for us. I'll just leave it at that.

Great. Thank you.

Thank you. Our next question comes from Lou Taylor of Deutsche Bank.

Guys, can you talk a little bit about your post-merger integration costs? Are you going to have two sets of accountants just making sure that the integration goes well, or property guys? In other words, maybe even running dual systems, if you will, so you'll have effectively double G&A in some sense?

Well, we want to affect the merger and the integration as quickly as possible. Post-merger, it will be a combined company, so at year end there will be one set of auditors giving an opinion on the combined financial statement. There will be a whole variety of transitionary costs, some of which have been quantified and are in the joint proxy statement, and some of which have not. We can't really give you any color on those at this time.

Thank you. Our next question is coming from Paul Adornato of BMO Capital Markets.

As you have gotten deeper into the merger was wondering if you could talk about some best practices from the Shurgard side that might benefit the combined entity going forward?

Well, Paul, there's a variety of things that the combined company -- several things that we have adapted. I'll just touch on one. One of the things that Shurgard had is a pretty robust commercial accounts program going after national tenants on the commercial side.

It's done out of their Phoenix call center. And so we're setting up a separate group on a go-forward basis to continue to pursue and expand that activity. Obviously it should benefit greatly because Shurgard had a platform of 450 properties to sell national accounts, and now that group will have a platform of 2,000 properties to sell national accounts, and so should be a -- that should be a very big positive for that group and for our organization.

Were there dedicated folks working on the commercial accounts, and will you expand that number?

Yes. There's a group there, and we're going to consolidate our national accounts business into that group. And I think there's enough horsepower there to do that and do it even better given the size of the platform going forward.

Okay. Thank you.

Thank you. We have a follow-up question coming from Christopher Pike of Merrill Lynch.

Hey, Ron. Just real quickly, with respect to Shurgard's European exposure, apart from just different GAAP considerations across different countries, Clem mentioned risks in the language earlier on. Do you feel that the opportunities over there for PSA in the medium to longer term will outweigh any potential risks that you may encounter in the near term?

Well, first of all, we haven't operated Europe, so I'd say that question is a little early in the process here to answer. What I can tell you is that the European team, the organization that Shurgard has built over in Europe is very good. The portfolio is very good, and I think they have demonstrated that the product acceptance of self-storage over in Europe has been well received, and it's a viable business, just like it is here in the U.S.

Okay. Thanks a lot.

Thank you. We have a follow-up question coming from Michael Knott of Green Street Advisors.

Just wanted to go back to the question on the housing market. Just curious why you don't track that impact on demand. I thought I had seen a survey before that said something like 40% of storage tenants cite moving as a reason for renting. Just curious if you guys really don't follow the housing market and the impact it might have on demand.

Well, Michael, I guess I look at it a little differently. If we've got 70 properties in Atlanta, and housing demand goes down, we still have 70 properties in Atlanta. We have to fill them. So the absence of demand will be reflected in the pricing of the product in Atlanta. So we will have to adapt our pricing on that product to suit the market demand. If demand is very good, then that will be reflected in the pricing. But we still have the 70 properties in Atlanta that we have to keep full. So the swing item then, depending on whatever the housing movement is, if that's the key driver, is the pricing.

Okay. But you have not seen any reduction in demand at the margin from this phenomenon yet?

We're not -- again, we're not tracking strong/weak housing in various markets and what it's doing to our consumer demand, because there's a whole variety of things that impact demand for our product besides housing.

There's moving, there's divorces, there's death, there's hurricanes. There's a whole myriad of things impacting demand for our product. So we're not tracking which particular customer comes in and do they have -- are they moving or did they have a death, or is there a kid coming home from college and they need a storage space.

What we have is, we have the properties in the market, and we're adapting our media and pricing programs to the demand that we're experiencing, and obviously through the media programs, we're trying to get a bigger share of the market than the other operators in the marketplace. But at the end of the day it gets reflected in the pricing.

Okay. And obviously you haven't seen any softening on pricing at least on a -- across the whole portfolio. I guess my last question is either for John Reyes or John Graul. How much more upside is there in your in-place rent if you were to think about--?

Well, Michael, I think the only thing we could tell you is that in-place rents at the end of the quarter were, what, 5.2, 5.4% higher than the same time last year. So I would say that's a good indication that there's still pricing power in the portfolio.

Thank you.

Thank you. Our next question is coming from David Cohen of Morgan Stanley.

Just a question on the preferreds. You note that you can redeem the R&S series in September and October. Is that something we should expect to be done? You'll have that 22 million charge as well? Is that a definite?

As I mentioned, we haven't made that decision yet, but I think you can look at our track history and gather what our thoughts might be going forward.

Thank you.

Thank you. Our next question is coming from Mark Binford of Goldman Sachs.

Hey, guys. A follow-up question. What effect does the weakening consumer have on your business, and are you seeing any effects of that right now?

Well, that's a similar question, I think, to the housing question, and we operate in 37, 38 states, a whole bunch of markets. And so at any one time income growth in one market is strong or weak relative to other markets across the country. I would say on a journal basis it's good that people are making more money and are more employed. That's a positive driver for our business just like most other things around the country. But again, we adapt our pricing and our media programs to the demand in that market.

So we're fortunate here that we have real-time data in terms of move-ins, move-outs, and kind of the velocity of customer flow. We look at that all the time, and we can adjust based on changes in that customer flow, and then we can also set our media program to drive additional demand or garner additional market share of demand in markets where we need it, where the customer flow is not as great as we would like. But that's a constant dynamic process, changing almost daily.

Is that a proactive--?

To the extent that income is slow or falling, and demand -- it has impacted demand for our product, then you will see that in the pricing for that product, whether it's in a particular submarket or a market as a whole. But overall, given the portfolio as a whole, you can see that demand is good, and pricing is reasonably strong.

So what things do you look at to see a downturn? Is there one thing specific, or is there a multiple front that you look at to see when there may be a slack in demand?

It's demand. We have Internet sites, and Internet sites that has hits that has click-through rates. We have people walking into the properties. We have phone calls. We have web phone calls. And we get that information every day, every hour. So we see what the demand is for the product across the entire platform of 1500-plus properties. And we're adapting the pricing and the media programs based on that flow of demand.

Okay. Thank you.

Thank you. Our next question is coming from Michael Salinsky of RBC Capital Markets.

With such a large national portfolio what markets are you seeing that are performing ahead of expectations and what markets are you seeing right now kind of performing below expectations?

It changes all the time, and I think in the 10-Q, which will come out next week, John Reyes and his team will give you a market by market breakdown on occupancies and NOI growth.

Okay. I guess as a follow-up, you mentioned, in an answer to a previous question there, that the -- actually, I forgot what I was going to ask.

Get back in queue, then.

Thank you. Our final question is coming from Jordan Sadler of Keybanc.

Good morning. I know you have -- I may have missed this, and I apologize, $1 billion roughly of cash on the balance sheet at quarter end, I know you have about 650 million or so maturities coming up in terms of possible preferred redemptions. And -- but you also filed a shelf last week. Can you maybe discuss plans for financing and what your outlook is for what you might do with that cash that's left over?

I'm not sure I understand the question, Jordan.

You have $1 billion in cash. What are you planning on doing with the $1 billion in cash?

Jordan this is John Reyes. In the document that was mailed to the shareholders of Public Storage and Shurgard for consideration of the merger this pro forma financial statement is embedded in there, and in those pro formas they outline some of our cash needs, which would be to repay Shurgard's line of credit, certain debt related to Shurgard, as well as merger related costs. The sum total of those is probably approaching, 8, $900 million.

In addition to that we just discussed the possibility of refinancing some of our preferred securities in the third and fourth quarter. The sum total of that is 650 million. So you could see that those kind of uses just alone are well in excess of the $1 billion of cash we have on hand.

And what are you seeing in terms of rates on preferreds right now?

Well, we can look at our secondaries, where our secondaries are currently trading, and they're trading at about, I think, 725 to 730.

Perfect. Thank you.

Thank you. Our final question is coming from Michael Mueller of JP Morgan.

Hi. May have missed this as well, but on the 23 million to rebrand and resign, one, just what's the time frame on that, what sort of time period? And then capitalization versus expensing, just what the policy is there.

The total time frame, Michael, with respect to the rebranding effort will be about six to eight months. And I do not have a breakdown as to the capitalization versus expense of that.

Okay. Thank you.

Thank you. At this time I would like to turn the floor back over to Mr. Clem Teng for any closing remarks.

I want to thank everybody for joining us for our second quarter call here, and we look forward to talking to you next quarter. Thanks again.

Thank you. This does conclude today's teleconference. Today's call will be available later for replay. The dial-in number is, 877-519-4471, and you may enter pin number 7661950. You may now disconnect your lines, and have a wonderful day.