Public Storage (PSA) 2008 Q1 法說會逐字稿

Good afternoon. My name is Nelson and I will be your conference operator today. At this time I would like to welcome everyone to the Public Storage first quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to your host, Vice President, investor relations, Clem Teng. Sir, you may begin your conference.

Good morning and thank you for joining us for our first quarter earnings call. 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 get started 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, many of which are beyond our control, that could cause actual results to differ materially than those projected in these statements.

In addition to the risks and uncertainties of ordinary business operations, these forward-looking statements are subject, to among other factors the effect of general and local economic and real estate conditions, risks related to acquisitions and joint ventures and risks associated with international operations. These and other factors that could adversely affect our business and future results are described in today's earnings press release, as well as in reports filed by Public Storage with the Securities and Exchange Commission, including our 2007 annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. All forward-looking statements speak only as of today, May 9, 2008. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

During today's call we will also provide certain non-GAAP financial measures. A reconciliation to GAAP of these non-GAAP financial measures 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 www.publicstorage.com. Before turning it over to John Reyes, I wanted to highlight that Public Storage's business is somewhat seasonal. If you look at our historical trend of our same-store core properties about 23% of the full-year's property net operating income is generated in the first quarter, 25% in the second quarter, 26% in the third quarter and 26% in the fourth quarter.

Now I'll turn it over to John Reyes.

Thank you, Clem. Net income for the first quarter was $2.64 per common share as compared to a net loss of $0.03 per common share for the same period last year. This significant increase was primarily driven by three items. The first item was the recognition of a $342 million gain, or $2.02 per common share on the disposition of its 51% about interest in Shurgard Europe. The second item was the recognition of a foreign exchange gain, which exceeded last year's gain by $36.7 million, improving earnings by $0.21 per common share. And the third thing was a $57.4 million reduction in amortization expense related to intangible assets that were acquired in the Shurgard merger which increased net income by $0.34 per common share.

Funds from operations were also higher at $1.39 per share for the quarter versus $1.05 last year, representing an increase of 32%. Both of these numbers, however, included the impact from noncore items as outlined in our press release. After adjusting for the noncore items funds from operations were $1.16 per share in 2008 compared to $1.02 in 2007, representing an increase of $0.14, or about 14%. This growth was primarily driven by improvements in our net operating income generated from our self-storage operations.

For the first quarter of 2008 net operating income for the combined U.S. same stores improved by 2.3%, the European same stores improved by about 15% and our nonstablized group of facilities grew by about 30.2%. Overall this growth was driven by higher occupancies, higher realized rents per occupied square foot, offset in part by higher expenses associated with snow removal and advertising costs. General and administrative expense for the quarter -- for the first quarter 2008 was about $14.9 million. Included in G&A is incentive compensation expense of $2.5 million related to the Shurgard Europe transaction, as well as litigation expenses of approximately $1 million. During the second quarter of this year we expect to incur additional G&A expense of approximately $25 million related to the Shurgard Europe transaction.

As a result of the Shurgard Europe transaction we will begin to account for our investment in Shurgard Europe under the equity method. Accordingly, this is the last quarter that Shurgard's operating results will be consolidated into our financial statements. For balance statement purposes Shurgard's accounts were no longer consolidated as of March 31.. Our balance sheet now reflects our investment in Shurgard Europe as well as our inter-company debt of 391 million Euro or $619 million. The debt bears interest at a fixed rate of 7.5% and has a term of one year through March 31, 2009, but can be extended one additional year through March 31 of 2010. Shurgard Europe intends to repay all of this debt through the issuance of third-party debt as soon as market conditions permit, but no later than March 31, 2010. We are committed to provide up to 305 million Euro of additional loans to Shurgard Europe under these same terms. These loans could be used to repay existing third-party loans owed by the two joint ventures and the possible acquisition of the remaining joint venture interest. The arbitration proceedings on these joint ventures are scheduled to begin this June.

We continue to maintain a solid financial position. At the end of the first quarter we have cash of about $725 million, debt of only $680 million we retained approximately $98 million of operating cash flow during the quarter. With that I will now turn it over to Ron.

Thank you, John. Our combined domestic same-store revpaf, or revenue per available foot grew by 3% in the quarter due to positive absorption and rate growth. We continue to aggressively price, promote and market our product in an effort to restore occupancies to their historical trend-line levels. For the quarter our pricing and promotional programs generated just over 2,800 more customers, or 1.4% more in our combined same-store pool than last year. With move-outs decreasing by 1%, or 1,700 customers, we had about 44% higher absorption, or 4,500 more net customers than last year. Occupancy increased to 89.4% at March 31st from 87.9% at December 31st. We have eliminated the year-over-year occupancy GAAP as of March 31st, which was a negative 0.2% at December 31st. As of April 30th we were 0.2% ahead. In addition, in-place rents were also 3.4% higher than last year. We are taking market share and continue to have upside for occupancy growth.

Our most challenging markets continue to be in Florida where we had negative top-line growth. Florida makes up about 10% of our combined same-store domestic portfolio and lower rates and occupancies in this market reduced the combined same-store revenue growth by about 70 basis points. We expect year-over-year comparisons will get easier as Florida begins to recover. We are starting to see some positive traction, especially in Miami. Partially offsetting Florida were the Minneapolis, Detroit, Chicago and Houston markets, which all had solid revenue growth. In addition, our two largest markets, Los Angeles and San Francisco, also had good growth in the first quarter. For the first quarter we expanded our media coverage to an average of 28 markets versus 23 last year. We expect our media spend will be higher in the second quarter than last year due to an increase in frequency.

Our European same stores continue to perform exceptionally well. For the quarter Europe achieved top-line growth of 6%. Europe also benefited from tight expense control that helped drive NOI higher by 15% and the gross profit margin to 62%. Europe's in-place rents at quarter end were 5.8% higher. The spread between asking and in-place rents is still quite large, positioning our European same stores for continued solid growth. We are pleased to be teaming up once again with a premier institutional investor, the New York Common Retirement Fund, to grow our European operations. We expect to accelerate our development program, but it will be a little while before you see the impact on our operating results. Shurgard Europe currently has 13 properties under development or in its pipeline. We have significant interest in acquiring portfolios, mortgages or properties under construction. We have significant buying power and financial flexibility to structure a wide variety of transactions.

With that, operator, I'd like to open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Michael Bilerman of Citi.

Hey, Ron --and Craig Melcher's on the phone with me, as well. You talked about having much more customer base, your new customers exceeding your move-outs. Does that mean even though occupancy was flat that effectively the new customers are taking a lower amount of space?

No, Mike, what I tried to highlight is that on a quarter-over-quarter basis we picked up customers, 2,800 more move-ins than last year and we had fewer move-outs, so the rate of growth in our portfolio year over year was better in Q1 2008 than it was in Q1 2007. The reason the occupancies are the same is we started in the hole at December 31st, so we brought ourselves back up to square one or even with last year and that momentum's carried into April where we're now 0.2% ahead of last year. So we've gone from behind to even to up 0.2%.

And there wasn't a discernible trend then on the amount of space that each tenant's taking?

No, the average customer size, no. It's about the same.

Okay. Well, we'll requeue up for our next question. Thank you.

Okay. Thank you. Our next question is coming from Jordan Sadler of KeyBanc Capital Management.

Morning out there. First question just comes from the -- your last comments, Ron, regarding your appetite I think you said to acquire portfolios, maybe mortgages as well as other potential investments. Were you referring to within the European joint venture or on balance sheet? And then maybe if you could just elaborate on where you're seeing the opportunities to invest the cash flow raised from the sale of the interest in Shurgard Europe.

Yes. Well, there's two things you bring up, Jordan. The first is, as John Reyes touched on, we do have a commitment to Shurgard Europe for somewhere between $450 million and $500 million to fund the possible take-out of the joint venture interest and the related debt on those joint ventures. The arbitration hearing is set for the end of June, so what comes of that and when that capital may be called upon I can't tell you, but there is an obligation on our part to loan to Shurgard Europe that money to take out -- possibly take out those joint venture interests. Here in the U.S. we're focused on trying to acquire mortgages on properties -- properties under development, portfolios of properties or single properties, and so it's kind of an advertisement to those operators listening that we have flexibility in structuring a wide variety of transactions that may suit their needs or we have plenty of cash to consummate at all cash transactions.

What have you seen in terms of flow of late? Has it been down from past years significantly or recent -- more recently?

Well, I think what you're seeing across the whole commercial real estate platform, whether it's office, industrial or self-storage and you've heard some of the other guys talk about it, is there's a pretty wide bid/ask spread. The people are -- the sellers are still looking at, so to speak, last year's newspaper ads looking at the prices and not really dialing into what's going on today. On the loan front it's a little challenging to -- for lenders to realize the economics of the terms -- the loans that they made and reflect that in the pricing. So overall there's a gap between the bid and the ask. I'd also say that the market environment is such that really a lot of operators are not under stress. It's the lenders that are having the stress, not really the operators and getting the lenders to move or do something I'd say is equally or more challenging than operators.

Thank you.

Thank you. Our next question is coming from Christine McElroy of Banc of America.

How you doing, guys? Can you comment on supply growth in your markets? Is that something that you track internally or do you use an external data source and are there any regions where you're concerned about the levels of high command line?

We don't -- we look at it in a submarket by submarket, Christine, but it's not something we track in aggregate. I think you've heard John Reyes talk about it in terms of pricing. When a competitor comes into a marketplace we have to deal with them and sometimes they affect our pricing and sometimes they don't affect our pricing. But overall we're not seeing a lot of new construction in the marketplaces. Some submarkets there's always people, I'm thinking of Honolulu. There's a couple properties that have come out of the ground and there's a couple more that are going to come out of the ground and in a small market like that that market's going to be over supplied in the near term. But on a holistic basis no, we haven't seen a whole lot of new construction.

Thank you.

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

Just a quick question around your focus on occupancy, and obviously that's a long term focus for your guys. How do you -- can you just provide some color on how you weigh the mix of promotions, advertising spending, your tolerance for margin compression and your push for rent growth in that drive for occupancy gains?

Hi, David, this is John. Occupancy's very important to us. It's not the only metric that we live and die by because after all, (inaudible) say here you can't take occupancy to the bank. But at the end of the day occupancy's the key driver that in our minds drives revenues, drives our pricing, drives our promotions and we try to target between 90%, 92% occupancy. When we get in that range we feel like we've got some pricing power and we've got some power to start reducing promotional discounts, as well as we start taking the pressure off of television advertising. And when we start getting there, obviously, our revenues start growing better, faster and that's just the strategy that we've taken in the past. It seems to have worked for us and I think we're going to continue along that strategy.

Great. Thank you.

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

John or Ron, can you just talk about the incentive comp a little bit in terms of where did it go? Is it to your European team, to the U.S. team, to a bunch of different folks? Could you just explain that -- or expand on that a little bit?

In terms who got paid?

Roughly, yes.

Well, it was all the people that participated in the value creation that has happened over in Shurgard Europe and realizing that value creation with the monetization of the 51% interest of Shurgard Europe to the institutional investor.

All right, so it was primarily to the European team?

No, mostly to the American team.

Oh, so the American team.

But the European team also participated.

Okay. And then -- all right. I'll get back in the queue, then.

Okay.

Thank you. Our next question is coming from Jay Habermann of Goldman Sachs.

Thanks. Back to the question that Jordan asked, can you rank order your preferences in terms of investments between portfolios, mortgages as well as one off properties? Clearly with $700 million of cash on the balance sheet you'll be incurring some dilution there.

We're open to all of them. There's no preference. Obviously deploying capital one or two properties at a time, depending on where you're buying them, is incrementally smaller dollars going out the door than if you buy a large portfolio for $400 million or $500 million. But we're open to all three or even whether it's a mortgage. At the end of the day what we care about is what is the underlying real estate, what's it going to be worth, what's its long-term growth rate. How we get there -- and structurally I think we have a lot of flexibility in getting there but at the end of the day we're open to all kinds of structures or portfolios.

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

Hey, guys, just going back to the incentive compensation. Can you just talk about why you structured this pay in a deal-specific format? Have you ever done that before? It seems like a relatively large number. It seems like half, roughly, of your annual overhead costs, so if you can also just address how it was determined. Thanks.

Sure. You're probably wondering what the trustees were thinking. Is that right?

Just curious to learn more about it.

Sure. Well, you know, Michael, if you look at what's happened with the Shurgard Europe since we acquired it, I have a few matrix here. In 2005 realized rents per foot were about $22 a foot, today they're $29.54; average occupancy was 78%, today it's 87.3%; and the gross profit margin was 44%, today it's about 62%. In addition, with the inter-company loan we've generated about a $100 million of currency gain. Whether we realize a all that I'm not sure. So we were able to monetize that value creation -- or partially monetize it in this transaction with New York Common in somewhat -- in a market environment that some would consider somewhat challenging, generating about $600 million of proceeds.

We also positioned Shurgard Europe as a stand-alone entity with capital now to grow and accelerate its development platform. Now for FFO purposes the gain I don't think anyone recognizes. The currency gains some people recognize, some people don't and how people treat the incentive payment in the G&A I don't know whether they'll put that into their FFO forecast or not. But if we paid an investment banker 3% or 4% for the money, it would have gotten buried in the gain on the sale of Shurgard Europe. To the shareholders the cash is the same. It's just that the bookkeeping varies in terms of what buckets and what line items it accounts for. Does that help?

That helps, thanks.

Okay.

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

Good morning. Ron, I guess the last part of your question helps me answer that one, but with respect to the joint venture I know you guys are open for business but does the joint venture with New York Common, does that in any way prohibit you or preclude you from spinning off any portion of Shurgard Europe in the public setting, as originally planned, if conditions present themselves in the future or is this "the final resting place of that entity?"

Chris, no, the business plan with respect to Shurgard Europe between us and New York Common is to take Shurgard Europe public at some time when capital market conditions are more favorable. So at the end of the day that's really the long term plan for Shurgard Europe and that's really what New York Common and Public Storage have bought into. It's very similar to what we did with PS business parks. When they came into that entity 11 years ago, they contributed assets, not cash, and then we raised some institutional money and then took the entity public within four or five months after that transaction was consummated. So we've been down that path with them before and that's still the long-term game plan for Shurgard Europe.

Okay and I guess maybe just on a related question maybe, John, I know you guys took a dead deal cost hit when the deal got scuttled. Does -- I guess does the joint venture sale does that help? Is there any offset to that dead deal cost or would you have to wait until you actually spin it out and actually utilize bankers for that service again before maybe you can reverse that?

Chris, yes, I think the so-called dead deal cost was about $9 million or so. That sunk. That's not going to basically come back and be beneficial. It's not going to be reversed. When and if we take this entity public we're going to have to incur much of the same fees all over again.

Okay. Thanks a lot, guys.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is coming from Michael Mueller of JPMorgan.

Yes, hi. Going to acquisitions and capital deployment, can you tell us if anything significant in terms of size has either been closed on in the second quarter, under contract or just what the near-term pipeline looks like?

Mike, I think whatever we've got is described in the press release, so there's -- there's some development stuff. We've got a couple prop -- acquisition properties that are under contract to close and then we've got the stuff over in Europe. So whatever we're contractually committed to or have underway is laid out in the press release. We're looking at stuff all the time in the hundreds of millions of dollars, but we're not at a place where we're contractually committed.

Okay. Okay. Thank you.

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

Good afternoon, guys. John, could you talk about where your street rates are at on a year-over-year basis and also what level of increases you're pushing on renewals currently on a year-over-year basis?

Michael, our street rates -- obviously it varies by market by property and they're all over the place. I would say in general across the platform our street rates are either flat to slightly down compared to this time last year. They were probably -- they were down probably about, I want to say 5% to 6% in March and probably about flat during January, February timeframe. So we lowered them down during March, gained some positive traction on move-in volume and we've been steadily increasing the rates, but we're still probably flat to slightly down. In terms of pushing rental rates to existing customers, we're pushing them at the same types of levels that we've been pushing them in the prior years. So customers are getting, I'm going to say on average something like a five-ish percent, but remember, those are just the customers that were actually sending rental rates increase letters to, which is not the entire portfolio at any one point in time.

Great. Thanks, guys.

Thank you. Our next question is a follow up coming from Michael Bilerman of Citi.

(inaudible) your bad debt expense trending in the first quarter and if you could compare that to how it's been in the last few quarters?

Well, we write off receivables I believe after 60 days and our delinquencies are close to record lows and they've been that way for the last year. We've taken a tenth or two-tenths of a point off our delinquency but the -- I mean they're very good. When we get acquisitions we are usually able to -- there's a metric we use, delinquent rent, and usually when we take over an acquisition we're looking at somewhere between 15% and 20% and we tend to run 3%, 3.2%. In terms of -- another item that we measure, it's called vacate uncollected, which are tenants that vacate and then the space is not put back online. That's also at a record low. So in terms of getting the cash and collecting it and managing the receivables, the operations group's doing just a fantastic job.

Thank you. Our next question is also a follow up coming from Jordan Sadler of KeyBanc Capital Management.

Can we stick with the expense theme for a second. Same-store expenses this quarter on the combined U.S. same-store portfolios was up 4.4%, which represented quite a bit of a tick up from last quarter levels and I'm specifically curious about the media spending line items and the R&M line item, if you could just maybe elaborate and tell us what's going on there, what happened in the quarter and if that's something that's going to stay at a little bit of an elevated level going forward?

Well, Jordan, if you recall -- you're talking about sequential quarters, right, Q4 to Q1?

Yes. Well, I was actually looking year over year with the 4.4% growth, but last year -- last quarters's --

Okay. Well, if I just go year over year ,property taxes up 4%. They usually run between three and five and that's usually what we start the accrual rate at at the beginning of the year. I think John Reyes touched on that last quarter, so that's a normalized run rate. Property payroll is up 1.2%, so we continue to realize some of the benefit from the wage rate roll down in the Shurgard managers year over year. That should probably stabilize somewhere between two or so. Media advertising was up year over year and as I touched on in my comments, that was an increase in frequency -- or both frequency and number of markets and I believe I touched on in Q4 that we were resuming media advertising in Q1 to drive the occupancies -- customer volumes which we were successful at doing. If you recall in Q4, we had dialed down media. Year-over-year Q4 '07 was substantially below Q4 '06. We did not do any media in December and very little in November. So we basically only advertised a month, month and a half in Q4, whereas we were on three months in Q1.

Utilities, our utilities -- repairs and maintenance, most of that increase $1 million, $1.5 million is snow. We had light snow last year. We had heavy snow this year. Property insurance is down. Other costs of management, part of that is a rebate that we got on discontinuing satellite service last year for about $500,000, $600,000 and the other swing is really a timing item. It's for our management conference that we have each quarter, that's about $800,000, 900,000 that was expensed to first quarter of this year and was expensed in the second quarter of last year. So that will swing a little bit year over year -- or quarter to quarter.

But -- so overall if you're to sum everything up on a combined basis, sounds like there's some ups and some downs. The growth rate that we saw in the first quarter seems like something that could be relatively sustainable.

Yes.. I'm not going to make a prediction whether it's 4%. We are going to have an uptick in media in Q2 this year versus Q2 last year and how that plays -- what that total size is I don't know yet because we haven't done our media buy for June. Depending on what happens in occupancies and rates through the summer rental season you may see a flat to negative comp on media going into Q3 and Q4's too far out for me to think about.

Great. Thank you. That's helpful.

Thank you. Our next question is a follow up coming from Christine McElroy of Banc of America.

Not to beat it to death but just following up on the expense questions, how soon after you begin TV advertising -- I think you mentioned five additional markets -- do you start to see the impact on demand trends in that market?

It's fairly quick, Christine, because we track the phone volume, the web volume and so when we run an ad usually within 24 to 48 hours we see an up tick. The thing about the media spin that's a little hard for people to understand is, when we spend money on media and then we do a combine with a dollar promotional special, you kind of have two negatives in that period. You have the media dollars, which we expense, and then you have basically zero revenue because the customer doesn't pay anything the first month's rent and we don't recognize any revenue from that customer. However, if the customer on average stays eight or nine months and pays you 1$50, %160 you could see the economics make sense in terms of what we're doing, but from a bookkeeping standpoint it's all expense in period one and the revenue comes in later periods.

That's helpful. Thank you.

Thank you. Our next question is also a follow up coming from David Toti of Lehman Brothers.

My questions have been answered. Thank you.

Thank you. Now our next question is coming from Lou Taylor of Deutsche Bank.

Yes, also on the expense theme. What were the additional merger-related costs that are coming up?

Merger-=related costs?

The $4 million of G&A related to the Shurgard merger?

That was in Q1 of last year.

Oh, Q1 of last year, okay. Sorry, I misread that.

Yes.

Then for my question, then, in terms of just -- if you can clarify on the balance sheet, is the cash from the Shurgard closing on the balance sheet at March 31 or is it more of an April 1 impact?

Lou, it's on the balance sheet at March 31.

Okay, super. Thank you.

Thank you. Our next question is a follow up from Jay Habermann of Goldman Sachs.

Hey. Ron, can you just talk about the potential returns on the larger portfolio deals. I assume you're looking at similar increases in occupancy and obviously synergy gains, but can you just compare today's transactions, say, versus the Shurgard transaction?

Okay. Well, let me make sure I understand, Jay. Do you want me to try to compare the acquisition of a portfolio of 20 or 30 properties with what we thought our return on investment with Shurgard was?

Even larger transactions, looking at even larger deals.

Even larger than Shurgard or larger than 20 or 30 properties?

Than 20 or 30.

Okay. Well, my guess would be in today's environment there's probably a portfolio discount versus a portfolio premium because capital, especially leverage capital is more challenging for guys to raise. For us we don't really look at it that way. We look at the individual pieces and take a sum of the parts and say what is the portfolio worth, whether we're buying one property or 100 properties. Now obviously the benefits that one would get with 100 properties in terms of yellow pages, cost of management, and probably some occupancy and revenue pick-up would be mult -- would be the same as if you'd bought one property and multiplied by 100 times but it's far more efficient. But really the way we look at stuff is if we're buying one property multiplied by however many we're doing. So we don't really ascribe in our own minds a portfolio discount, it's just a better opportunity to deploy a larger sum of capital. How other people look at that in the marketplace my guess would be that they would take discounts for portfolios because they're harder to finance. Does that address your question?

Yes, I guess I was just trying to get a sense of are you seeing the same type of return possibilities that you saw with Shurgard in today's environment, meaning in terms of, is it really going to come from occupancy upside or is it really more cost synergies?

Both. Most -- there's very few transactions, if any, that will probably replicate Shurgard because there was so many synergies across so many areas and that was a very effective five -- efficient $5 billion, $5.5 billion transaction, so there's no one -- there's nothing else to buy there for that size. In terms of what typically happens on acquisitions, yes. We usually get cost synergies and top-line growth and I think there's a table in the press release, but it's certainly spelled out more clearly in the 10-Q where we track the year-over-year occupancies, the year-over-year rates and the year-over-year expenses of those properties not in the same-store pool and it's by year of acquisition or by year of development and you can see that play out. So on a microscale the same thing's happening that happened in Shurgard, occupancy growth. rate growth, expense efficiencies. It's just harder to see the individual impact and that's why we have that broken down into the 10-Q.

Thanks.

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

Hey, guys. Can you just take a step back and paint us a picture of how your operations look and feel different since John Graul joined and then also look forward and help us understand how the new folks will fare in his role and what their outlook is?

Yes, John Graul is a great addition to the team. He helped standardized and put consistency and structure across our platform here in the U.S. Probably I would have to say his greatest contribution is, John's a great executive in terms of hiring people, quality people, getting them in the right spot and setting up processes for people development. Those processes, those attributes, those things are firmly in place and the two guys stepping up here, [John Sambuco] and David Young, have had 4.5, five years of mentoring under John Graul. They've participated in a lot of the stuff that he's done and they've learned a lot from him. So I don't expect a big change in terms of things going forward and the things that John Graul brought to the Company are pretty firmly embedded in terms of our culture.

Thank you.

Thank you. Our next question is a follow up coming prom Chris Pike of Merrill Lynch.

Hello again. I guess back to John with respect to the balance sheet. I just wanted to be square with respect to your comments. So Shurgard Europe's going to appear through equity earnings on the P&L next quarter, but you do have the note receivable. And investment in real estate entities, I think a portion of that is PSB book, correct?

That's correct.

Okay. So can you break out the two because I would assume the other is your equity ownership in -- ?

Yes, basically the change between the year-end number of about $300 million --

Fine. Okay, great.

-- that's basically Shurgard -- our investment in Shurgard Europe so that represents our 49% remaining investment in Shurgard Europe.

Okay, so that is book because some folks, like us, we apply market value to that PSB to try to get at asset value.

Chris, in the 10-Q there'll be a lot more detail for you to be able to chew on and hopefully get to what you're trying to get to.

Okay, great. Thanks a lot.

Thank you. Our next question is a follow up from Jordan Sadler of KeyBanc Capital Management.

It's a housekeeping one. Ron, I think you said in April -- I think you were referring to occupancy April 30th you were 0.2% ahead.

Of last year.

Oh, of last year.

Yes.

That's the right number Can you give me the absolute number?

No, I don't have that handy, but if --

Or I'll take the absolute number from last year if you have it?

Do we have combined?

[I don't think we have it combined.]

You know what, Jordan, you can call back and get that.

I'll get back to you.

Thanks, guys.

Thank you. Our next question is a follow up from Lou Taylor of Deutsche Bank.

Thanks. In terms of your same-store pool, both for the core and Shurgard, it changed by roughly 80 properties or I guess 63 and one. Does that change your geographic distribution much?

It does obviously change it somewhat. The numbers, though -- the numbers in terms of revenue growth and NOI growth is about the same, so there's not much difference between the two. But the geographic location does change it a the bit.

Okay. And what are those changes?

You know, I don't recall off the top of my head. We have more Carolina influence in the Shurgard same-store pool than we had in the past.

All right. And is it the same 80 properties in both pools or is it just 80 additions in both?

They're in 80 separate additions in both.

Separate 80 additions in both. Okay. Thank you.

Thank you. Our final question is coming from Michael Bilerman of Citi.

Coming back to the incentive payment, how was the $27.5 million set as a value, how broad were the payments and is there anything else in terms of any other payments tied to maybe this vehicle going public, the buyout of the joint ventures or any other performance, whether it be Shurgard domestic and Shurgard Europe?

Well, the $27 million, you're talking about the $25 million plus the $2.5 million?

Yes.

The $2.5 million related specifically to the Shurgard Europe folks and it had to do with some equity-based compensation. They had some units that are analogous to stock options within Shurgard Europe that due to the transaction accelerated the investing of those units and the $2.5 million is essentially the differential between the value that they will get and the exercise price. With respect to the $25 million, the whole $25 million is mostly from mostly -- its from mostly here in the U.S. and it's all related specifically to the transaction with New York Common. It had nothing to do with the Shurgard merger or any other transaction that was either contemplated, i.e., the IPO that did not happen back in June of last year or the [Rcaptata] JV transactions that we're hoping to accomplish.

And how did that $25 million -- how did you come up with $25 million?

Well, the board of trustees came up with it and all of them participated in a discussion, so how they arrived at that, I can't tell you.

Well, how much does that represent of the value that -- your allocated value for Shurgard Europe versus the implied value on the joint venture in New York Common, what's that spread and how much value went to PSA shareholders?

Well, Michael, I touched on earlier and gave you some metrics on what has happened on the Shurgard same stores since the time we acquired them and so you can replay the conference call and go back to that, as well as the $100 million of currency gain and raising capital in this environment. So, I think Michael Knott asked that question earlier, so I'd just refer you to go back to that.

Yes. No, I understand the benefits on the operations. I think one of the reasons you went into this transaction is you saw that it was an underperforming asset that bringing -- you'd see some benefits on the operational side. I'm just trying to grasp if you allocated $1.5 billion value to Shurgard Europe and the implied value's $2 billion in the sale and you got 50% of that, so call it $250 million gross value. I'm just trying to figure out, putting that $25 million in context of the real value creation that's come from buying it at one price and liquidating 50% of it at another.

Well, why don't you look at the NOI generated from Shurgard Europe in 2005 and the NOI generated in Shurgard Europe to date and you can come up with your own estimate of the change in value, as well as the implied valuation ascribed to Shurgard Europe by New York Common.

Okay. Thank you.

Thank you. We have a question coming from [David Zonervek] of (inaudible).

I had a question on the property taxes. Just looking on a per square foot basis same store for last year on a per square foot full year was $1.09 per square foot but the -- and if you annualize the first quarter's numbers that you have accrued for property taxes it's $1.23 a square foot. So it sort of implies the newer -- that the 400 facilities you're adding in in terms of property taxes per square foot are a lot higher. Could you explain this discrepancy?

Well, part of it, David, is that the Public Storage legacy portfolio has a significant number of California properties, very old California properties who -- as you know in California we have Prop 13, so there's not a lot of increasing here in California with respect to those properties. So that portfolio has been kept relatively in check, whereas the Shurgard portfolio, when we did the merger we had to step up values here in California for those properties and so we're paying at a much higher valuation or assessed values on a relative square foot basis, which is -- now when you blend the two together it's pulling the portfolio on a combined basis up. I don't know if that helps explain it, but really primarily California properties.

Thanks.

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

Just following back, John, Michael Bilerman's line of questioning. Is it fair to assume -- or it sounds like that this incentive comp is not tied to anything related to the Europe JV assets that are in litigation. If something were to occur there in terms of the litigation gets solved, you acquire those assets -- it sounds like the trustee's logic would be that another incentive comp fee would occur in that transaction. Is that fair to assume?

I don't know. There's nothing that I know about right now related to that.

No, sure, but it sounds like if you get an incentive comp for doing the value accretion, which you've done in this particular portion of the European portfolio that there'd be another one coming for the rest of it. Isn't that kind of fair?

Well, the arbitration is really settling up really the unwinding of the joint ventures and whether -- what the arbitrators decide and all that I have no idea. That's still unfolding. So I don't know what the trustees will do. There's no plan tied to the arbitration that I know about.

No. It's not the arbitration per se but if the trustees are going to start awarding incentive comp for major transactions I think that we should probably build in some increase in this comp -- or some future compensation for that whether it's a year or two down the road. Isn't that -- isn't that fair to assume?

You can do whatever you want. I'm just trying to say there's nothing that I know about on the table related to that. As I said, the trustees can do what they choose to do.

Okay. Thank you.

Thank you. Our next question is coming from Jeff Donnelly of Wachovia.

Hi, guys. Just a follow up, Ron, on the incentive payment, two parts, I guess. Why did the board opt to pay an incentive on this transaction? I don't believe you guys have a history of specialized payments and I think what people are wondering is how much of that $25 million actually went to the people who are on the call today from Public Storage?

Well, you'll get to read about who got what in next year's proxy and I think with the question that Michael -- I'll refer you back my answer with Michael Knott in terms of what's happened in Shurgard Europe over the last couple of years and the information in the 10-Q and the 10-K in terms of what's happened over there and the complexity and the value created associated with Shurgard Europe.

Okay. And is it fair to say that maybe the majority, though, of that $25 million went to senior management at Public Storage?

Yes, and you can read the details in next year's proxy.

Thanks.

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

Hey, guys, just one more question on this. Why did the board consider the foreign currency gains as part of all the value creation in Shurgard Europe? It seems like that was more arguably as much luck as skill that was actually created through the self-storage operations and the financings and such?

Michael, the board considered a whole variety of things in evaluating the incentive comp and so that is just one element.

Thank you.

Thank you. I would now like to turn the call back over to Mr. Clem Teng for any closing remarks.

Okay. Thanks, everybody, for attending our first quarter conference call and we look forward to talking to you next quarter and have a good day. Thank you.

Thank you. This does conclude today's Public Storage first quarter 2008 earnings conference call. You may now disconnect and have a wonderful day.