Public Storage (PSA) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage first quarter 2009 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 session. (Operator Instructions). As a reminder, today, May 8th, 2009, this call is being recorded. Thank you. I would now like to turn the conference over to Mr. Clem Teng, Vice President of Investor Relations. Sir, please go ahead.

Good morning, and thank you for joining us for our first quarter earnings call. Here with me today are Ron Havner, CEO; and John Reyes, our 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 start, 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 that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in today's earnings press release as well in our reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of today, May 8th, 2009, and we assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, SEC reports, and audio webcast replay of this conference call on our website at www.publicstorage.com. Now I will turn it over to John Reyes.

Thank you, Clem. As indicated in our press release, our core FFO per share was $1.16 for the first quarter of 2009, which is the same as last year for two reasons.

The first and most obvious reason is our overall property operations were flat. Our same-store operations were down about $4 million, but this was offset by the growth in our non-stabilized facilities.

The second reason is due to our investment in Shurgard Europe. Shurgard's contribution to our funds from operations in the first quarter of 2009 was $15 million lower as compared to last year. This reduction is primarily due to our reduced ownership interest. Recall that at the end of the first quarter of last year, we sold 51% of our interest in Shurgard Europe for approximately $600 million. We were able to offset approximately $11 million of this $15 million reduction through a combination of interest earned on our loan to Shurgard and by investing approximately $360 million of the $600 million over the past six months. These investments included repurchasing some of our debt and preferred securities and thereby reducing interest expense and preferred dividends.

During the first quarter of 2009, we retained approximately $100 million of our operating cash flow or about 51% of our funds available for distribution. At the end of March, we had approximately $500 million of cash on hand. During the first quarter, we discontinued our truck rental operations and incurred costs to terminate truck leases and wind down the businesses of approximately $3.5 million. The truck rental business is accounted for as discontinued operations in our income statement.

With respect to Shurgard Europe's financing situation, last quarter we indicated that the two joint venture loans were maturing in 2009, and we were working with the banks to extend the maturities of these loans. During the first quarter, the maturity of one of these loans was extended to July of 2010. With respect to the other loan, all of the banks in the syndicate have now approved the terms to extend the loan for two additional years. We should complete the documentation within the next 30 days. Shurgard Europe has a 20% ownership in these JVs.

In March, the joint venture partner gave its exit notice with respect to JV 1. There are specific exit procedures to be followed pursuant to the joint venture agreement and we have 90 days to respond. We are currently evaluating our options.

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

Thank you, John. Our operating performance in the first quarter was consistent with the trends we began seeing in October of last year. Our same-store move-ins were 3% higher versus a year ago as we aggressively lowered asking rents and increased our media spend. Same-store move-outs were also higher for the quarter by 4%. Overall, we lost 0.9% occupancy in Q1 and ended the quarter down 1.1% versus last year.

Our best performing markets were in the Northeast and Houston, while our worst performing markets were in the [Southeast] starting in Charlotte, North Carolina down through Miami, Florida. In April, demand was soft versus prior year, but results were better.

Move-ins were 2.5% higher compared to last year, and move-outs were basically flat, an improvement from the first quarter. We ended April with square foot occupancy of 89% versus 90% last year and closed the year-over-year occupancy gap by 10 basis points. We continue to aggressively price, promote, and market our product to drive customer volume and restore occupancy. We expect that our advertising expense in the second quarter will be modestly lower compared to last year. We will be using spot TV as we did last year, but reduce our newspaper and radio program. The percentage of customers receiving promotional discounts is higher than last year and that won't change until occupancies are restored.

Shurgard Europe reported negative NOI growth of 12% for the first quarter as a result of reduced street rents, higher promotional discounts, and increased media spend. Our pricing and promotional activities appear to be working as we have positive absorption in the first quarter versus negative absorption last year. We expect negative NOI comps for the next couple of quarters. With respect to capital deployment, we continue to take advantage of the disruption in the financial markets and repurchase preferred stock and debt. Since November last year, we have de-leveraged by about $500 million, generating a net gain of about $120 million. Our leverage is now about 25% of total capitalization.

PS Business Parks has also de-leveraged its balance sheet by repurchasing $100 million par value preferred securities, generating a gain of over $30 million, further enhancing the value of our 46% equity ownership. An additional bonus is that gains related to our preferred repurchases are tax-free. Given the recent recovery in the preferred market, this may have been a once in a lifetime opportunity.

Not much has changed with respect to property acquisitions. Lenders are granting borrowers extensions or the loans have not yet reached maturity. We've looked at over $1 billion of loans.

Overall, market transaction volume is nominal. Meanwhile, property values continue to decline due to deteriorating operating environment and increasing cap rates. We remain patient. While the near term operating environment is challenging, we are very excited about long-term opportunities for well capitalized public real estate companies. This is like deja vu. The capital markets and operating environment are very similar to '91/'92, and we think there will be significant value creation opportunities in the next couple of years.

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

Thank you, sir. (Operator Instructions). In consideration of others, we ask that you please limit initially to one question, then please return into the queue for follow-up questions. We'll pause for just a moment to compile the Q&A roster. Your first question is from Mark Biffert of Oppenheimer & Company.

Good morning, guys. Ron, I was wondering if you could talk a little bit about the preferred partnership unit buybacks. You had said that would be a once in a lifetime opportunity when you did any. Who were the sellers of those shares, and can you talk a little bit why they were trading at such large discounts?

Mark, this is John. We bought it from one seller, an institution who happened -- who is the original buyer of the units. I can't remember how long ago it was when we first sold them the units. But nonetheless, suffice to say they felt like they needed the liquidity, were willing to sell at a price we were willing to buy, and we consummated the transaction.

All of our preferred transactions were really negotiated separately with various institutions, some closed-end funds, some third party institutions. And it really depended on where the preferreds were trading at that price, or comparable preferreds, and their liquidity needs.

Okay. Thanks.

Your next question is from David Toti of Citigroup.

Good morning, this is Michael Bilerman. I'll try to make this a fully loaded question to get enough appetite. Continuing a little bit on the preferred, the preferreds are perpetual in nature and carried a coupon of about 6.4%. You were able to buy them back at about a 9.5% investment yield. But I'm curious, Ron, your comments related to de-leveraging today to about 25% in treating the preferreds, I guess, as debt in that calculation, even though they're perpetual in nature.

How do you think about what will be the investment opportunities on the horizon at some point? It sounds like comparing it to the early 1990s of getting excited for that. And taking out a slug -- while I know you have all the free cash flow and sitting on cash -- but taking out a piece of the cap structure that was priced at 6.4%, which while it produces the nice gain of getting it, I'm not sure that's going to be replicable in the future if we're in this sort of cap rate environment. And so I'm just trying to think about how you put everything together in terms of spending this capital, and then also where you think leverage is going to shake out over time.

Okay, I'll try to answer that question, David. You may have computed a 9.5% blend. I'm not sure. In there was one preferred, $25 million that we redeemed that had a 6.25% to 6.5% coupon that had a put on it, so that really just became due this year.

If you exclude it, it's about 10%.

Yes, I would say if you take the purchases since November through February, the weighted average, I know it's over 10% because none of them were below 10%, and we did some at 11% and 12%. So we look at it as the ability to deploy capital, de-leverage the balance sheet, generate a gain -- or not really generate a gain, but discount on the purchase in a tax-free manner. So that was really the math in our belief that in the long run we'll be able to issue preferred at substantially below the double-digit yield, which we did not anticipate that within 45 to 60 days, our preferreds would be trading down to an 8.5% or so coupon. So we just looked at it as a great opportunity to both de-lever the balance sheet in a very tax efficient manner and generate a double-digit return on the capital.

In terms of returns going forward on self-storage facilities, you've got -- it's kind of like a moving train in the sense that NOIs are going down, so today's 8% cap rate may be tomorrow's 10% cap rate. I think we'll be able to over the next couple of years, acquire some high quality properties at very attractive yields. What those are, I can't predict, in terms of an NOI basis, but I think it will be far more attractive capital deployment opportunities than has existed for the last three or four years when capital was abundant.

And then in terms of the leverage, you specifically mentioned de-leveraging in your comments of buying back the preferreds. How do you think about where you go from there?

Well, if our preferreds were trading back above 12% and 13%, John is nodding his head, we'd buy them all day and go down to zero leverage, if that opportunity existed.

Thank you. We'll requeue up.

Your next question is from Jay Haberman of Goldman Sachs.

Hey, Ron, just want to follow on Michael's point there for a second. I mean, your stock is trading at an implied cap rate probably in the upper 8s or close to 9%. I know you've talked about looking for opportunity, probably in the 10%, 11%, 12%, 13% range, and you've been discussing this over the last couple of calls, but are you just not seeing any opportunities as you look both at public companies as well as private opportunities?

Well, Jay, it's really a question of what are the opportunities, is there -- stepping into a transaction, is there enough quality assets, along with the assets that probably have -- are of lower quality than we want, and really waiting for -- the pricing is coming towards us, so I really see no reason to be real aggressive at this juncture.

I guess that's -- I guess taking your point of view then, you're expecting trends to get significantly worse in the balance of the year?

I think all the public self-storage companies have reported. So the results speak for themselves.

Okay. But I'm just saying in terms of the economy stabilizing in the latter half, you're not expecting much of an improvement any time soon?

I'm not an economist. I have no macro economic forecast. We kind of work here day to day. Like I said, I think you can look at the results of ourselves and some of the other guys and see the trends.

Fair enough. Thanks.

Your next question is from Ki Bin Kim of Macquarie.

Could you give a kind of quick update on your average street rate in your portfolio from March, April, and into May?

Our average street rates, although we've been holding them relatively -- let's say relatively constant, they're quite a bit behind our street rates from last year. In fact, they've probably expanded the decline. So we're down double digits, the low double digits, somewhere around 13% below last year, and we've been hanging in that direction for about the last two to three months. And I expect that's probably going to be the case for at least the remainder of the second quarter and probably into the third quarter.

Okay, thank you.

The next question is from Jordan Sadler of KeyBanc Capital Markets.

Thank you. Ron, just responding to one of your other comments about most of the industry's -- well, all the industry that's public has reported at this point. There were some that indicated that there seemed to be a glimmer of hope in the end of April, and into May, although some didn't indicate at all, and that leads me to believe that they didn't see any improvement whatsoever. I was just trying to get a sense of what you guys were feeling -- even though you said you saw an uptick in occupancy, are the other metrics encouraging or discouraging, given that it's sort of the leasing season?

Jordan, let me try to frame up the question in terms of our business here a little bit and then if I didn't answer it, come back on. In the self-storage business, rental season really starts February, March. January sometimes is a net positive month, but February, March starts to get positive absorption, so we're in the thick of it right now. So there is a -- due to the customer flows, there is an uptick in activity sequentially -- generally February to March, March to April, April to May, May to June. After June, the season -- essentially you've got what you've got, and it's net outflows for the balance of the year. So when someone is asking is May better than April, or is April better than March, of course it is, because it's the rental season.

The question I think you're trying to ask is, is it better than it was last year, which is kind of the indicator for us. And that should be your focus in terms of where the flows are, where the business is. And we had a better April this year than we did last year. We've been declining since October of last year. March, as I said, we were 1.1% behind last year. We closed that gap in April. But that was not free. We spent more on advertising in Q1 than we did last year, and as John just indicated, the rental -- the street rates are behind last year, and the number of customers getting promotional discounts are higher than last year.

So big picture, I would say we are taking share in the marketplace. There's fewer customers there. We are taking share, given the trends I've seen from some of the other guys and what's happening in our portfolio on a year-over-year basis. Does that address your question?

Yes. On the concessions, you continue to concession at a higher level. Have you changed the type of concession, or just first month free or first month for $1 still?

Jordan, it's still the $1 special for the first month. The amount of concessions, and we're talking about the number of people who move in, the percentage of them that are getting concessions -- we have a higher percentage in April than we did last year. So I think, I want to say about 90% of the move-in volume in April got the $1 special. That compares to about 85% last year.

And the market share statistic that you cited, or you said that was going up, Ron, do you get that because -- are your close ratios rising?

No, if you look at our year-over-year occupancy trends versus the other people and then self-storage -- SSDS, or whoever, I think they threw out the industry is down 5% or 6%. You look at the other guys, what's happening, where they are sequentially March to March, April to April, okay. And the gap is expanding, not narrowing.

Thank you.

Your next question is from Michael Salinsky of RBC Capital Markets.

Good morning. John, question for you. Can you talk about specific trends as it relates to commercial as well as residential? And also kind of what you're anticipating in terms of renewal increases, whether you expect to push those at all this year, and if so, to what degree do you expect to push those?

Michael, we really don't track residential versus commercial, so I can't comment on that. I just don't know, because we don't look at that. In terms of increases to the existing tenant base, normally we start sending increases out with effective dates of March, and we go from March into probably July, August, before we stop. So each month we will send out a new tranche of increases to tenants who hadn't gotten them. Typically we will only send increases out to people who have been here at least a year. This year we did not send out increases in the month of March or April, but we did send out an increase with an effective date this past May 1st. So increases in terms of rates, rates are about consistent with what we normally do, somewhere in the neighborhood of about 5% on average.

Any other trends you have noticed, maybe with credit card payment?

No, we had seen that, I think, last year, that there was an uptick in credit card payments, people using credit cards -- or plastic, I should say, it could be debit cards -- to pay their bill. But we have not seen any more movement from where it had upticked to.

Thanks.

Next question is from Jeff Donnelly of Wachovia.

Good afternoon, guys. I have, I guess, a two part question on revenue. The first part, given the financial stress your competition is likely facing, have you considered an even more aggressive pricing strategy to take market share here in the US, or I guess are we seeing that already out of you?

You're seeing it, I think.

And I guess the follow-up, concerning Shurgard Europe, the year-over-year same-store revenue -- you mentioned some of this in your comments -- dropped 4.5%, which is a little steeper of a decline than the 2% we saw last quarter. Do you think that because storage is a relatively newer concept in Europe and they, too, are in a recession that we'll continue to see this year-over-year decline in Europe, or I should say we'll see it accelerate from this point? Or do you think we'll be holding around these types of declines?

No, actually, we've seen -- Jeff, we've seen basically Europe improving. Last year we came into the year, things were very good. We were probably a little aggressive on rates and rental rate increases to customers. Our occupancies were 88%, 89%, and so we felt very good. And that really hung until April or May of last year. We were doing quite well, and then the things really slowed down and we started gapping backwards year over year, I think, in the third quarter of last year. My guess is that started to bottom out, because if I look at the trends month by month, if you take the 94 same store properties, January year over year we were backwards 4.7%, February we were backwards 3.2%, March backwards 2.4%, and April backwards 1.4%.

So we're closing that year over year gap in Europe. They've lowered street rates. Not as much as we have had to do here in the States, but we've lowered street rates, and they've really cranked up the media spend. And you can see that in the expense line there in terms of their year over year advertising expense.

So I think Steven and the team have done a good job with the pricing. They've spent a lot of time over here getting up to speed on the pricing, and I think they've done a good job, and their marketing programs are working as well.

Does that mean that the NOI declines could moderate a little bit as we roll through the year then?

Yes, I think we're going to have negative comps for the next couple quarters. I don't want to go so far as to say what they're going to be, because I really can't tell you what the advertising spend is going to be.

Thank you.

Your next question is from Michael Mueller of JPMorgan.

I think you touched on this on a prior question, but Ron, you gave out the occupancy at -- the press release had it year over year and April 30, and the gap was closing a little bit. March 30th, the in-place rent mark to market, I think the stat was minus 2.1%. If would you roll that forward to April 30th, where you gave us the occupancy number, is that number similar to that 2.1%? Is it a little lower, or is that gap closing as well?

I don't have that number with me, Mike, but my guess would be it would be lower -- because as John touched on, if the asking rates are lower, you've got a little bit of rent rolldown on the in place rents.

Mike, I have the number. It is slightly lower.

Okay, slightly. Thank you.

The next question is from Michael Knott of Green Street Advisors.

You touched upon the street rate year-over-year change, and touching on the last question, how does the street rate currently compare to the in-place number?

Michael, good question. We have -- it's a negative spread. Just on the surface, it's backwards about a little over 4%. But you know -- and that's as of yesterday, okay? So that changes constantly. Because as we move further into the busy season, our rates will continue to rise, albeit still behind last year. But as they rise, that mark to market spread will start narrowing, right? And then it widens again when we get into the fourth quarter as we start reducing rates again. So it really bumps around throughout the period of time. So I don't know that you could take a lot of comfort that it's now at roughly a little over 4%, whereas at the end of March it was close to 10%.

Okay, and you're talking negative numbers there, right?

Absolutely.

Okay. Thanks.

(Operator Instructions). The next question is from Lindsey Yao of Robert W. Baird.

On the last call you said that on a normal run rate, you replace roughly 7% to 8% of your tenants each month. Have you seen that change at all?

Well, as I mentioned, we saw, I think in April move-ins were up 2.5%, move-outs were basically flat, and we actually had uptick in net absorption for the month better than last year. So are we -- we have natural flow move-outs, 8%. We did better at replacing them in April than we did last year. Does that address your question?

Yes, thank you.

The next question is a follow-up question from Mark Biffert of Oppenheimer and Company.

John, you mentioned that you guys are currently evaluating -- I think you said you had 90 days to evaluate the partnership buyout in Europe. I'm just wondering if you can talk a little bit about how that will be evaluated in terms of valuation for the assets, and what the options are for you guys and whether you're likely to buy the assets or to work to sell the assets.

At the end of the day, we would love to own the assets, but would it to have to be at the right price, and we are currently evaluating our options. I can't tell you what the -- I couldn't even tell you what the value of the assets are because we're just getting started in that process.

Have you seen -- in the European market, have you seen any assets trade that would give any kind of indication as to what that is?

Not really. We've -- and I would say there's just a couple of portfolios over in Europe, actually one in particular that I would say would be of comparable quality to Shurgard. These were all properties that we've built ourselves, so I'd call them state of the art, latest generation facilities. The only other comparable portfolio I would say that's over in Europe is Big Yellow. So whatever trades have happened would not be of comparable quality, but the activity in Europe is as bad, if not worse, than it is here in the States.

So, Ron, before, when you were talking that you weren't seeing much in the US, when you look at Europe, are the opportunities or the quality of the assets better in Europe than they are in terms of the opportunities you're seeing in the US, and that might be an area where you might look to invest instead of here?

There's opportunities cropping up in Europe, but in the big picture of things, keep in mind there's only like 1,500 facilities in Europe. 300, 400 of them are in Great Britain. The balance are spread across the continent. And there's some great assets, but there's a lot of cats and dogs. So we're being patient in Europe as well, and we'll bide our time over there.

Okay, thanks.

The next question is a follow-up question from Jay Habermann of Goldman Sachs.

Hey, Ron, just following up on the comment that you guys sent out rent increases for tenants obviously that had been in your portfolio for some time, as you start to receive some push-back, or as you anticipate you might receive some push-back, are you going rethink that strategy and just maintain rents and cut rates? And I guess following on that, can you comment a bit on Florida and California, or maybe New York metro, what you're seeing there?

On the rental rate increases, Jay, as John alluded to, I think we skipped one or two months here at the beginning of the season, and we're carefully monitoring customer behavior after getting the rental rate increases this year. So far we think it's going okay, but we're carefully monitoring that. In terms of -- so the rates that we've sent out, we've been a little more conservative this year, and again we're monitoring the behavior. Your second question was -- ?

In terms of some of the markets where in the past you've seen challenges? You mentioned Florida again being difficult. But California, New York City, areas like that.

New York, we're doing pretty good in. Rates aren't as -- they're down a little bit, but they're not as backwards. We had a pretty good quarter in the northeast. Northern California --.

San Francisco has been fairly stable for the most part. Not knocking the doors off by any means.

Southern California, and particularly Los Angeles, has been a little more difficult. What we're experiencing here is, and had been for quite some time, was move-out activity had really upticked. We had talked about that in the fourth quarter, I believe, and into the first quarter we had seen significant uptick here in the Los Angeles area in terms of move-out activity. Los Angeles is a market that we were very aggressive at cutting rental rates, and I mean very aggressive. We got the move-in volume from that. Our occupancies currently in Los Angeles are touching 90% now, but the move-out volume is still higher than last year, and we have no pricing power in the market. And as you know, Los Angeles is our biggest market in the portfolio.

Great, thank you.

The next question is a follow-up question from Jordan Sadler of KeyBanc Capital Markets.

Hi, this is Todd Thomas. With regards to the media and advertising spending, how did the benefit that you received in driving traffic and occupancy stack up against your expectations and what you would have anticipated?

Well, that's the question that the great marketing wizards of the world cannot answer for not only us, but any company. What we do see is we see -- when we do marketing, we see an uptick in the call, the Internet volume, net move-ins. When we do advertising the prior year but not the current year, we see a decline in the phone calls, the Internet, and net move-ins. We have some various formulas and things that we look at to determine do we think it makes sense or doesn't it. Overall, I'd have to say in the first quarter it made sense, and we did reasonably well with the media. Does that address your question?

Yes. It does. I guess you've said in the past that advertising has been a great lever to pull in order to drive occupancy. I guess just against your expectations before the campaign began, I was just wondering if you got the expected benefit. Was traffic up overall?

It was. We did okay, but you've got to remember, we're in a pretty challenging operating environment. So despite media, we still had to lower rates and increase the level of promotional discount, and we're continuing that into Q2 as well. So it was positive. We did -- we think we did better than if we had not spent the media money. So overall we thought it was a worthwhile investment, but it was not able to arrest the pricing decline and the increase in the promotional discount.

Okay. Thank you.

The next question is a follow-up question from Michael Salinsky of RBC Capital Markets.

You talked about revenues quite a bit. On the expense front over the past several quarters, you definitely benefited from a lot of cost reductions in a number of areas. Obviously, you mentioned advertising will be flat to slightly down in the second quarter. But can you touch also upon what your expectations are for other areas that can be reduced, or are you starting to push up against cost reduction areas right now that you can't trim that much more out of?

Michael, this is Ron. Property taxes, I think we said last quarter we expect 3% to 5% for the year. Payroll is down flat year-over-year. I think we'll be able to keep that flat to very modest increase. Media, as I touched on Q2, I expect it to be pretty flat relative to last year. Utilities, oil is down, so maybe we should do better than last summer's utility bills, but that I don't know. R&M, we're doing a good job controlling that, and we've put a lot of capital into the properties over the last couple years. So my guess would be we would continue 3% to 5% down year-over-year. Phone center, we've got some efficiencies going there. We'll probably continue to go down. I don't know if we'll get double-digit, but we'll go down. Insurance, we've renewed, so we'll do 10% to 15% down. Other costs to management -- that's supervisory personnel, office expenses, the support structure, payroll, HR. We've been doing some things there. So my guess is we'll be flat to slightly down year-over-year.

Very helpful. Thank you.

The next question is a follow-up question from Michael Knott of Green Street Advisors.

Hey, guys. If I can throw a couple questions out here. One would be, John, can you comment on trends you're seeing on the bad debt side?

Michael, surprisingly we're not seeing any real negative trends on the bad debt. Our bad debt is consistent with what we've been seeing in the past. In terms of when we sell delinquent tenants' stuff to pay for bad debts, the number of those sales has not ticked up. So we're not seeing anything there. I think what's happening, Michael, is people are just moving out. When they can't pay the rent, they kind of see it coming, and hence they're moving out, and that's why we had seen this uptick in move-out activity.

Are you seeing a shift in the proportion of your tenants that are sticky longer term versus those that are just there for a very short duration?

One of the things that we're noticing is -- and it's still kind of happening where our longer term tenants are still moving at out at -- now it's a slightly higher rate than they had in the past, whereas in the fourth quarter it was quite an uptick. That has slowed down. But the newer tenants seem to be staying, at least so far, they're staying a little bit longer than what we've seen in the past. Now, it's very premature. But nonetheless, over the past I would say two to three months, we are seeing the newer tenants, seeing -- probably sticking around. Maybe that's due because our rental rates are down, and maybe that's helping them in their decision to stay a little bit longer.

Okay, thanks.

The next question is a follow-up question from Ki Bin Kim of Macquarie.

To follow up on your previous comments about market performance, it seems like with your Southeast being tough and Los Angeles being tough as well, are we not seeing the benefit from dislocation from people moving in and out of homes or downsizing from foreclosed homes to apartments?

I'm sorry, Ki, are we not seeing that benefit?

Or not as much as expected?

We don't -- when customers move in, they don't tell us whether they -- we don't track surveys whether they've been foreclosed upon or those kinds of things. I think it's very interesting what's going on in the marketplace, the Northeast being as strong as it is, given the dislocation in the financial markets. The Southeast -- Florida has been soft for -- it's been a couple years now. The rate of decline is slower. The Carolinas and Atlanta have just become a trainwreck. The rates are backwards more than -- far more than the averages, and so the Southeast is a mess. I was reading somewhere the other day Georgia has the greatest number of banks that have been taken over by the FDIC, so the economy down there is just in shambles. L.A., there's a whole bunch of things going on in L.A., but big picture, I'd say the import/export business is a big driver here, and that's way off from prior years. So as you see the world economy going up, and the import/export stuff picking up, I'd say that would be a plus for the L.A. market.

To follow up on that, if you're in a tough market already, do decreasing rental rates help out significantly, or do customers see it as a binary event and it doesn't really have a huge impact?

Well, there's fewer customers out there, but I think you could look at industry data and the other operators in the business and see that rates -- I don't know the pricing strategies of the other guys, but that rates, what we're doing is working. We're holding our occupancies and actually we're improving year over year. So I would say rates and advertising and promotional discounts work.

Okay, thank you.

The next question is a follow-up question from Michael Mueller of JPMorgan.

Thanks.

Do you have a question, Michael?

It was already answered, thanks.

Okay.

The next question is a follow-up question from Michael Knott of Green Street Advisors.

Hey, guys, can you just provide a little more color on the being patient strategy? Obviously that's the right thing to do, but how are you thinking about what the opportunities are going to be over the next couple years? There are some of your peers today that were saying that the sun seems to be shining again. Do you feel like that's true? Do you think that debt is going to become more plentiful and maybe come down in price a little bit? Do you feel like there's going to be opportunities for you guys in the next couple years, or will this turn around and maybe the opportunities that we may have thought would be there won't be?

Okay, you're going to get me making a comment about, first, I don't think we have any peers, but you're going to get me commenting about other guys, so I don't really want to do that. I think we've been -- we've painted, since October, a pretty sobering outlook for the business. I think what John has articulated in rates, what we're doing on promotional discounts, you'd have to conclude it's a pretty sobering outlook.

The positive is, we're getting the customers. People are moving, they're using storage space. That's a fantastic thing. If you listen to PSB's conference call on the commercial side, the large tenants have gone. There are no -- they're just gone, in terms of the commercial customers on the office space and the retail guys have their problems as well.

In the big picture, I think the self-storage stuff will do better than average during the downturn, but the near-term operating environment is pretty challenging. And with declining NOIs, it's what are you buying and where's the bottom on this thing, and where are things going to level out. Does that address your question, Michael?

Yes, that's helpful. Thanks.

Okay.

At this time, we have no further questions. I would now like to turn the floor back to Mr. Teng for any additional or closing remarks.

Okay. We thank you all for participating on our conference call this morning, and we will be talking to you next quarter. Bye.

Thank you. This concludes today's Public Storage first quarter 2009 earnings conference call. You may now disconnect.