Public Storage (PSA) 2008 Q2 法說會逐字稿

Good afternoon. My name is Pam and I will be your conference operator today. At this time I would like to welcome everyone to the Public Storage second 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, [Clem Tang], Vice President of Investor Relations. Sir, you may begin your conference.

Good morning, and thank you for joining us for our second quarter earnings call. Here with me today are Ron Havner, CEO; and John Reyes, CFO. We will follow 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 from those projected in these statements. In addition to the risk 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 10K and subsequent reports on Form 10-Q and Form 8-K. All forward-looking statements speak only as of today, August 8, 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 audio webcast replay of this conference call on our website at www.publicstorage.com. Now I'll turn it over to John Reyes.

Thank you, Clem. Yesterday, we reported our funds from operation was $1.10 for the second quarter. The same as in the second quarter of last year. Both of these numbers, however, included the impact of non-core items as outlined in our press release. After adjusting for the non-core items, funds from operations was $1.25 per share in 2008 compared to $1.14 in 2007, representing an increase of $0.11 or 10%. This growth was primarily driven by improvements from our same-store operations. For the second quarter of 2008, net operating income for US same stores improved by 4%. Our European same stores improved by 11% and our non-stabilized group of domestic facilities grew by 23%. Overall, this growth was driven primarily by higher realized rents per occupied square foot, offset in part by higher expenses associated with advertising and property taxes.

For our US same-store pool, revenues increased by 3.2%, while occupancy was roughly flat at 91%. Keep in mind, unlike other self storage companies, we do not include tenant insurance in our self storage numbers. If we had, growth in revenue and net operating income would have been much higher, as revenues in our tenant insurance business here in the US improved by 13% during the quarter and net operating income improved by approximately 20% on a year-over-year basis. Further, we do not include in G&A expense indirect overhead costs that support our property operations. All costs of supporting our property operations include human resources, information technology, accounting, legal, and all supervisory compensation are included in our costs of operations. This is probably different than some other REITs and may impact investors' calculations of net asset value. Some of the larger expense items that are included in our G&A include state income taxes, certain senior executive salaries, development overhead, audit and tax fees, stock-based compensation, and costs associated with being a public company, such as Investor Relations and trustee expenses.

Our G&A expense for the second quarter of 2008 totaled $33 million. Included in this number is incentive compensation of $25.4 million related to the disposition of an interest in [Shurgard Europe]. Accordingly, the core run rate for the quarter was approximately $8 million. For the remainder of this year, we expect our property tax expense will continue to trend between 4.5 and 5% higher than last year. %

There are numerous reports about municipalities running into large deficits and needing additional revenues to balance their budgets. As a result, we are seeing municipalities becoming much more aggressive on the assessed values. With respect to the disposition of the 51% interest in Shurgard Europe that we completed at the end of March, our prorata share of funds from operations from Shurgard Europe was approximately $6.3 million lower this quarter as a result of the disposition. However, offsetting this reduction was approximately $3.3 million of incremental interests generated on the $610 million of cash proceeds that we received from the disposition. Importantly, we had a net negative spread of about $3 million during the quarter. Keep in mind that the $610 million was invested during the quarter at an average rate of 2.2% and we expect that our ultimate reinvestment rate will be higher than this 2.2%.

In July, we acquired the remaining interest in 10 self-storage facilities that were part of an unconsolidated joint venture for total cost of $46 million. This cost included the repayment of approximately $38 million of debt and the acquisition of the partners equity. The debt had an effective interest rate of 8.5%. We are also obligated to provide up to 305 million Euro, of additional loans to Shurgard Europe that will bear a fixed interest rate of 7.5% through March 2009, which can be extended for an additional year through March 2010. These loans could be used by Shurgard Europe to repay existing third party loans owed by the two joint ventures and the possible acquisition of the remaining joint venture interest. At the end of June, the arbitration proceedings for the European joint ventures was held in Belgium. Arguments were heard from both sides and we expect that a decision will be made by the time we report our third quarter results.

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 3.1% in the quarter due to rate growth and positive absorption. We continue to aggressively price, promote and market our product in order to drive customer volumes. For the quarter, our pricing and promotional programs generated 1,200 more net customers than last year. At June 30, occupancy ended at 91.7%, equal to the prior year, and our July 31st occupancy was 91.5%, 0.3% ahead of last year. For July, we had net move-outs of 2,900 customers versus 5,100 net move-outs last year, an improvement of over 40%. Historically, July is a net move-out month, most of which occurs on the very last day of the month.

Our most challenging markets continue to be in Florida and Honolulu, where we had negative top line revenue growth. Florida makes up about 10% of our combined same-store domestic portfolio and lower rates in occupancies in this market reduce the combined same-store revenue growth by about 50 basis points. We are starting to see some positive trends, especially in Miami. Honolulu continues to be negatively impacted by additional supply and reduced demand, resulting in an 8% revenue decline in this market.

With respect to the question of how the housing market crisis is impacting our business, we have posted the supplemental schedule on our website, outlining foreclosure rates and changes in home prices for the 20 markets reported on by S&P, Case Schuller and Realty Track. We've compared this analysis to our same-store revenue growth and occupancy. It is an interesting analysis and there does not appear to be a direct correlation to local housing market conditions and our performance, at least in the short-term. However, the overall reduction in moving, activity tied to the decline in home sales is no doubt impacting our business.

The European same-stores continue to perform well. For the quarter, Europe achieved a top line growth of 4%. Europe continues to benefit from tight expense control that helped drive NOI higher by 11% and the gross profit margin to 61.6%. As we have said before, Europe's growth rate will start to normalize and we believe we are approaching that point. Some key markets, especially London, are under pressure and the ability to reduce expenses is more modest than two years ago.

In summary, the good news is, customer volumes are up. Pricing promotion and marketing programs appear to be working. Occupancies are higher going into the third quarter, and we have better absorption in Q2 in July than last year. Receivables and other cash collection matrix are the same or better than last year.

The bad news is asking rates are below last year. Credit card usage is higher, up to 49% from 46% last year, with credit card discounts up $300,000 to $6.9 million year to date. We show credit card discounts as a reduction in revenue, not as an expense. Promotional discounts are also higher, resulting in 20% increase in customer acquisition costs. Putting all this together, while we're going into the third quarter with higher occupancy rates for new customers or less than we charged last year, so our revenue growth could be lower into the third quarter and possibly the fourth quarter, depending on the level of pricing and promotions needed to sustain customer volumes.

With respect to investments, we are well positioned for this environment. We have about $800 million of cash, earning just over 2%. So we have a lot of earnings power built into deploying this capital. Reverse inquiries are increasing and seller expectations are starting to adjust. However, we still have a ways to go. We will remain patient and disciplined.

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

Thank you. (OPERATOR INSTRUCTIONS) Your first question is coming from Jay Habermann with Goldman Sachs. Please go ahead.

Hey, good morning, guys. Ron, just to start on the last point you mentioned there in your comments about the cash on balance sheet and you mentioned pricing getting a little bit more favorable. I'm just wondering what you're seeing so far, how much more of a change in cap rates do you need to see and I guess ultimately, if you don't see much of a change in cap rates, do you think you would do more share repurchase? And I guess as well, are you starting to see some sellers come to you with any sort of refinancing issues? Potential sellers?

Well, Jay, there's a whole variety of things that we're seeing in the market. There's some people that have refinancing issues. So you have to take a look at those portfolios and say, what is the loan to value relationship, are the properties overleverred, because in some cases, people are out there buying product with very creative financing, resulting in frankly today, there's no equity in the deal. Because the financing was so favorable. We're seeing an increase, as I said, in reverse inquiries, where people that we've been in touch with over the last year or so are starting to call back. Transactions have not closed, or they have decided that they want to sell and they realize that the market has changed. That doesn't mean that their expectations have come back to kind of back down to earth. They are still in an '07 pricing, but at least they are talking and they are interested in a transaction.

Share repurchases are really dependent on what are the alternative uses of capital in terms of what are the opportunities before us at any particular time and the price of the shares and that really drives the share repurchases. Keep in mind with the $800 million, as John Reyes touched on, we still have a commitment to Shurgard Europe to loan them back 300 million Euros or 350 million Euro, which is close to $500 million. So over half of that money is indirectly committed to the Shurgard Europe operation, at least until we have some resolution on the joint ventures over there.

Did you say how large the reverse increase were?

Did I say how large they were? No.

Would you provide that?

They are all over the board, from local operators to guys with sizable portfolios.

Okay. Thanks.

Thank you. Your next question is coming from Michael Bilerman with CitiGroup. Please go ahead.

Hi. This is David Toty here with Michael. Can you guys talk a little bit about the economic scenario that's underpinning some of your outlook and internal forecasts with regard to your revenue and occupancy expectations for the next 12 months or so?

Well, I don't think we have a 12-month forecast that we've articulated. We have some sense of what we think might happen, but nothing that we've kind of come out with. Most of the way we operate is day to day, rental by rental, space by space, in each and every market. And we're constantly adjusting our pricing and promotional and marketing discounts to what is happening at the particular facility in the particular market. And you can have new competitors come into the market. You can have competitors drop out. They can have problems. They can be doing, adjusting the rates. And so we have to adapt to that each and every day. And that's really our -- the way we operate the business.

Thank you.

Thank you. Your next question is coming from Christeen Kim with Deutsche Bank. Please go ahead.

Hey, good morning. Ron, you mentioned that you're seeing some positive trends in Miami. Could you talk about what some of those positive trends are and what you think might be driving those?

Well, the -- let me see here. Positive trends in Miami, the -- we're starting to have better customer volumes year-over-year. Occupancy is starting to move up, although rates are backwards from last year. Our promotional discounts are leveling off year-over-year, so at some point in time, once you start to get these kind of trends going, at some point you cross over to year-over-year comps and so the comps also become more favorable. Some of the other markets where it's still extremely competitive, such as West Palm Beach, where we're up over last year in terms of customer volumes and -- but we're still backwards, I believe in terms of occupancy end rates.

Do you have a sense of what's driving some of the trends, demand trends Miami?

No.

Okay. Thanks.

Thank you. Your next question is coming from Christine McElroy with Banc of America. Please go ahead.

Hey, good morning, guys. Can you give us a sense for how you're approaching the revenue management process in Europe versus the US differently, if at all in terms of kind of the balance between pushing rents versus occupancy, especially, as you mentioned, as growth in Europe has started to normalize?

Well, Christine, we've spent a lot of time with the European folks, kind of getting them up to speed on our -- the way we manage the revenue sites here in the US and how to layer in promotional discounts. Keep in mind in Europe, you have a couple of different dynamics, or environment different here than the US. One, they don't use the media like we use the media here in terms of television. There's not the scale in any of the markets over there to kind of turn on TV and turn off TV. The internet is a higher percentage of the customer low over there, and they are definitely into the internet. Also, we don't have a call center in Europe like we have here in the US. So it's a little different in terms of managing customer flows and what's going on in that regard.

Other than that, the pricing, promotional discounts, last year they introduced the one Euro special. It's very similar to what we do here in the US. One of the things in Europe that we did last year and into the first quarter of this year is we saw that we had real good pricing power in a couple of markets and we'll continue to push rates and I think in a couple of those markets, we've kind of found the top in terms of our ability to continue to push rates with the customers. And I'm thinking of Denmark and Sweden. France, we've been challenged. France, we have properties in a number of -- both in Paris and number of submarkets and we've had some people challenges there. And London, pricing wise, London's the most competitive market over in Europe and there's been an influx of new competitors, additional supply coming into that market and it's made that a little more challenging.

Thank you.

Thank you. Your next question is coming from Jordan Sadler with KeyBanc Capital Management. Please go ahead.

Good morning. Deal costs seem to be contagious this quarter among the self-storage REITs. I didn't see any in your numbers. Did you guys happen to hop into the fray for any portfolio acquisitions this quarter?

I don't think of the magnitude of the other guys, Jordan.

What's that? Not of the magnitude?

I don't think of the magnitude relative to size of the other guys. I'm sure we had some -- each quarter we got acquisition costs. We got an acquisition team of two or three guys and we've spent money on traveling and legal fees and that kind of stuff each and every quarter.

Okay. That makes sense. I wanted to come back to one of your comments and it may be a nuance, but interestingly enough, July you said is usually a net move-out out and often on the last day and I was curious if there was anything that drives that or thoughts on that.

Well, move-in -- move-outs in particular typically occur a lot on the last day. It also depends on what day of the week, if you end on a Sunday, we're only open, most markets, half day on Sunday, so you're not going to get as many move-outs as if the month ended on a Friday or a Saturday. But to give you some idea, going into July, if you looked at the numbers on July 30, we were positive 2,100 tenants in the same-store pool and after the last day of the month, we're down 2,900 tenants. You compare that to last year, July 30, we were up 8,00 tenants and after the 31st, we're down 5,100 tenants, so both month end days, you've got 5,000 to 6,000 net move-outs in that one day. It is particularly pronounced in July. June 30th is usually the peak of the occupancy and the balance of the year is each month is a net move-out month generally. It varies in terms of volumes, but generally from July through December, it's a net move-out mode for the rest of the year.

Your comments on sort of summarizing what's working, what's not working, or what's good versus bad, I think at the end you kind of suggested that you were a little bit less sang win about revenue growth headed into the back half of the year just because it sounds like a little pressure on rental rates and promotion activity needs to remain high to get people through the door. Is that an accurate read on what you were saying?

Yeah, as I said, rates -- asking rates are below last year and how -- what level of negative asking rates we're going to need going into the second half of the year, what level of promotional discounts we can't see, but it's certainly been a pretty challenging first half of the year. The offset to that is as you work your way into the year, remember, Florida started to really go sideways in the back half of '07 and so at some point, Florida's going to cross over and start to give you positive comps, as I'm sure Hawaii will sometime in the future as well. So at some point you kind of cross over into these markets that have been big drags and the comps start to become better.

That's helpful. Thank you.

Okay.

Thank you. Your next question is coming from Paula [Poskin] with Robert W. Baird. Please go ahead.

Thank you, good afternoon. Do you have any further expectation for incentive compensation related to the Shurgard transaction in the second half?

No.

Thank you.

Thank you. Your next question is coming from Michael Knott with Greenstreet advisor. Please go ahead.

Ron, talk for a second about, you know, sort of maybe your net effective rent, if you think about you said your street rates are down. Are discounts increasing as well? And then also, do you feel like you have to continue increasing your media spend to continue maintaining your occupancy, so what's sort of the net effective decline you're seeing in rates?

Michael, this is John. I think if you look at our street rate, Ron had indicated that they are down. We were probably down about, somewhere in the neighborhood of 5% on average across the country for the quarter on street rates. However, on a mark-to-market basis, our rates that we're asking are still above what our in-place rents are. In-place being what our existing tenants are currently paying on a contractual basis. So we do have still a nice spread there, which is helpful in still growing the revenue. With respect to the discounting, our discounting is higher this year, not only are we giving it to more tenants that are moving in, the actual dollar amount is actually higher than last year also, notwithstanding the fact that rates are down. So on a net-net basis, overall discounting is higher in the absolute dollar, as well as in the absolute tenants that are coming in receiving the dollar discount. As I expect that as we move forward into the third and fourth quarter, we will continue along this path of discounting more, as well as keeping our asking rents below last year's asking rents.

Michael, one of the things I touched on to kind of get to your net effective -- there's a thing I touch on called "customer acquisition costs", and it kind of plays into recall that that combines marketing costs and promotional discounts, divided by the number of move-ins, compared to -- so that takes into account your volumes, compared to your beginning first month rent and your move-in fees to get you kind of down to, what does it cost to get a customer, vis-a-vis how many you've got and what is your asking rate, and Q2 '07 customer acquisition costs were $29.70. Q2 2008 they were up to $37.36. So that's that 20% increase or so in customer acquisition costs. I think that kind of captures the matrix. Now, obviously when customer acquisition costs move down, a whole variety of matrix get positive both on the revenue line and on the expense line, especially related to media.

And then just a quick follow-up and I'll yield the floor. John, also given the spread that you noted between in-place and what you're achieving on new customers combined with existing customer rate increases, you would still expect revenue growth to be positive though, correct?

Well, we're not giving any projections on our revenues, but we're certainly hopeful that our revenue growth is going to continue to be positive.

And you are continuing to see traction and increasing rates for existing customers?

We typically have wrapped up the year in terms of when we give -- rate increases to existing customers, so we're essentially done for the year, which is consistent with the past years. We typically do not give rental rate increase letters going into the slow season.

What's our volume -- percentage increases --

They have been roughly about 5%, so for those who did get an increase on average, it's been about a 5% increase.

Thank you.

Thank you. Your next question is coming from Michael Mueller of JPMorgan. Please go ahead.

I think you touched on this a little bit, but the idea of the second half of the year revenue growth maybe being a little bit less, I guess the question is, is it more of a prudent expectation that things continue to moderate a little bit because of the economy, or if you compare the beginning of Q2 and think about your pricing power versus the end of Q2, was there any notable change from kind of beginning of the quarter to the end of the quarter?

Definitely rates, Michael. If you look at our press release at the end of the first quarter, we have disclosed that our in-place rents at that point in time were up about 3.4%. That was at March 31.

Versus the 2.7, yeah.

So that alone I think shows you the decline so far that we've experienced in over -- in that three-month period.

Okay.

And it's not in the occupancies, because you can see our occupancy on a year-over-year is roughly flat, so it's all coming in the rate inflation.

Okay, thanks.

Thank you. Your next question is coming from Michael Salinsky with RBC. Please go ahead.

Good morning, Ron. In the past earnings release, you have disclosed performance of the legacy portfolio versus that of the Shurgard US portfolio. Do you have -- could you talk about how those performed on a relative basis?

Sure. Let's see, Public Storage revenue same stores, revenue was up 3% for the quarter. Cost of ops -- NOI was up 3.2%. Occupancies were 91.4 last year versus 91.2, and you add ref pave growth of 2.9%. On the Shurgard same-store, revenue was up 3.7. Cost of ops is down 1.4, so you had NOI growth of 6.4%. Occupancy went to 90.5% from 89.3 last year and ref pave growth was up 3.7%.

Great, thank you.

Thank you. Your next question is coming from Chris Pike with Merrill Lynch. Please go ahead.

Good morning, gentlemen. Ron, are you guys, you know, I know back in the last downturn, you had the payment in arrears. Giving your rising customer procurement costs, are you contemplating any change or any modification to the $1 move-in that could maybe try to temper those costs going into the back half?

Well, it really depends, Chris. We evaluated, as I touched on earlier, kind of market by market. If you were here and got into the granularity of the pricing group, they are looking at it by space, by market and then the decisions are made on a market basis because you can't run television for one property. And as we see the customer traction in the move-in volumes, then we calibrate up or down on the pricing and in the promotional discounts and the media. Obviously in the first half of the year, you've seen we've been fairly aggressive on the media. Our year-over-year expense is up $2 or $3 million. Going into the back half of the year at this time, Q3 we're looking at the comparable media to last year, but that will depend on how things play out. We've got to get through August and then we'll be making media decisions in September and October.

I guess the question is, you're not going to modify -- you're not going to modify the way in which you offer discounts; you're going to tweak it by market so. You're not going to embark on like a payment in arrears system or some other deviation from your typical discounting process. You're just going to tweak it by market and by amount?

Yes.

Okay, thanks.

Thank you. (OPERATOR INSTRUCTIONS) We have a follow-up question coming from Jay Habermann with Goldman Sachs. Please go ahead.

Hey, Ron, just going back to the advertising and promotion, you talked about sort of the aggressive pricing or promotion at the start of the call. Are there any markets where you're seeing that work less well? And again, even the benefits of that even the last few months have obviously diminished a bit and then I guess further to the point, when do you think about giving discounts to existing customers? Obviously, them staying longer in place, certainly less turnover is helpful.

Okay. Well, let me try to -- let me see if I understand your question on the media. We look at the media by market. It works to different degrees of efficacy in each of the markets. I think we've been doing this long enough to know in general which markets it's worth the money and which not. It is not, although as with all companies, marketing is a tough thing to measure, so we're looking at that all the time and spending the money, we think appropriately. You know, I could tell you in -- for example, San Diego, we've done TV several times. It doesn't work, so we don't do television in San Diego. In markets like -- in New York, it seems to be working, and so we're on television in New York. So it's different by market. The -- in terms of customer churn rate, typically when you have an acceleration in customer move-in volumes you have for a period of time an acceleration of customer move-outs because,60% of your customers move out within the first six months. So there's an uptick in that. We experienced that in last year, as we were filling up the Shurgard portfolio. We've experienced a little bit in the first quarter, but our move-out rates, the rate, the percentage of customers moving out each month, has actually been ticking down and -- which is normal as the customer base gets more stabilized.

Okay. So back to the first part about the advertising and promotion, I guess I was just trying to get at, like more recently, as you've been increasing the spend, have you seen any signs of where that's actually not yielding the type of results you would like to see?

Well, for the amount of -- I'll give you a general picture. For the amount of money we spent, I don't think -- I sometimes question whether we've gotten as big a bang for it, but overall, I would have to say the media and the pricing programs have worked because our customer volumes have been up year-over-year every month this year, except January. So February, March, April, May, June, July and so far into August our customer move-in volume is higher than last year. So I would say overall, the program is working in conjunction with our media -- our pricing and promotion programs.

Thanks.

Thank you. Your next question is coming from Michael Knott with Greenstreet Advisors. Please go ahead.

Hey, guys. John or Ron, can you give a little bit of color on the partnership interest acquisition, maybe location, price per foot implied by your purchase, maybe cap rate?

You're talking about the one we did in July?

Yes.

Yeah, it was a partnership we formed probably about five years ago with a US pension plan, pension that we've done business with before. It was a somewhat structured transaction where they had essentially a capped return on their investment. They hit their cap. Their cap was, what, about 10%? So we were essentially straight-up partners except for they had a capped return. Part of their investment had to be classified as debt due to the timing of getting some properties into the fund some five years ago. So in terms of cap, in terms of the cap rate, kind of didn't really follow those lines because if we had put a market cap on them and they did not have a capped return, they would have had something in the low teens, but because they were capped out, we just had to write them a check for their return. So it didn't follow kind of a typical buy assets from a third party kind of structure.

Okay. Thank you.

Thank you. Your next question is a follow-up coming from Michael Bilerman with CitiGroup. Please go ahead.

Hi, it's Dave again. Given that you've pretty much completed the Shurgard integration, as well as the Shurgard interest sale, is your appetite for another large scale acquisition increasing at this point?

Wouldn't you love to know the answer to that question.

Yeah.

I really can't comment on that.

Let me reframe that. Given that you've got such a large asset base, which is pretty scalable, but when you make small acquisitions, there's not a lot of meaningful productivity out of that. What kind of external growth channels do you think about relative to moving the needle to be a little bit more above average for the industry?

Yeah, well -- as I touched on earlier, we're continuing to do the one and two and five-property acquisitions as they make sense. There are some larger portfolios in the marketplace where one can deploy a meaningful amount of capital out there and so there's opportunities to continue to drive that and whether we -- I think on the last call I touched on, the benefits of a 50-property portfolio versus 51-property portfolios generally are the same and we get kind of the same zing out of it in terms of yellow pages, marketing, cost efficiencies in that regard. So we're going to continue to do that as opportunities present themselves.

Okay, and if I could just expand along those lines a little bit more, if we think about you guys as -- about PSA as a large portfolio of assets in markets, do you ever think about the company as sort of an opportunity fund, whereby you should be trading out of assets and markets that are chronic underperformers and if so, why don't you actively dispose a little bit higher volume?

Well, I don't think you should think of us as an opportunity find. We're an operating business where we have scale and brand name and so the operating platform is very important. With the Shurgard merger, we have looked at certain submarkets, tertiary area markets where we acquired assets and where we -- the properties are in need of a fair amount of capital. We are getting those properties positioned, sometime down the road there will be some small group of properties disposed of where we have no scale or really presence in the market. But now's not the time to be frankly in the marketplace trying to sell products. So you're not going to see anything for the balance of this year.

Okay. Thanks for the color.

Uh-huh.

Thank you. Your next question is coming from Jordan Sadler with KeyBanc Capital Management. Please go ahead.

Hi. This is Todd Thomas with Jordan. Do you think you saw any benefit from government rebate checks in the quarter, either move-ins or in attendant retention?

No way of figuring that out. If I look at the comps across the platform, if you look at the data produced by Ray Wilson, if you look at some of the public comps on a macro basis, you would say it probably didn't impact the self-storage industry a whole bunch. It may have, but it's pretty hard to measure, because you've got a mixed bag of results with our portfolio, net absorption, and I think used store had net absorption. The other guys went backwards or sideways and I think the data from Ray Wilson showed there was negative absorption, so I would say overall no impact.

Okay. Thank you.

I have one as well. It's Jordan. The -- your media spending's up 25% year-over-year, which you talked about and I'm just forward-looking a little bit here, what would you -- would you expect any impact on media spending from increased rates associated with the summer Olympics or the upcoming election?

That's a good question, Jordan. We're into August, so we already had to make our media buy and we locked in our rates earlier. We have locked in the rates and the media buy for October, which is where you would expect the heavy political, so we're kind of set and prepared for that. Keep in mind last year in Q4, we reduced media spend mid-December and -- mid-November, excuse me, and none in December. And we're going to do that again this year. We won't go in media past mid-November and not in December. So anyway, we've locked in the rates for October. Whether we do October or not, I can't tell you. The thing on the politicals is even though you can get a commitment from the stations in terms of getting your air time and all of that, you can get bumped, because they have to give both candidates equal time and so if someone is really cranked up their media spend, then the other guy gets equal opportunity and you can get bumped even though you think you have the media time.

That's helpful. Thank you.

Thank you. Your last question is coming from Michael Mueller with JPMorgan. Please go ahead.

Yeah, I thought I withdraw that. I'm fine, thanks.

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

Thank you. I appreciate everybody's interest and questions on today's conference call. And we'll talk to you next quarter. Bye.

Thank you. And this concludes today's Public Storage second quarter 2008 earnings conference call. You may now disconnect your lines, and have a pleasant day.