Public Storage (PSA) 2009 Q4 法說會逐字稿

Good afternoon. My name is Beverly and I will be your conference operator today. At this time, I would like to welcome everyone to the Public Storage fourth quarter 2009 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). Thank you. Mr. Clem Teng, you may begin your conference.

Good morning and thank you for joining us for our fourth quarter earnings call. Here 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 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 as in our reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of today, March 1st, 2010, 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 an 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. For the fourth quarter, our core FFO per share was $1.33, compared to $1.38 last year, representing a decline of 4%. Significant items impacting the quarter included a decline in same store net operating income by $9 million, which was partially offset by the growth in our non-same store properties of $2 million. A decline in interest earned on our cash balances by $5 million, due to lower interest rates, and interest expense and preferred dividends in the aggregate were lower by $3 million due to earlier repurchases. The decline in our same store revenue and NOI moderated in the fourth quarter as compared to the third quarter.

Revenue declined 3.9% in the fourth quarter, compared to 4.6% in the third quarter, and NOI declined 3.8% in the fourth quarter versus 6.3% in the third quarter. Notwithstanding the pressure on our operations, our financial position remains solid. At the end of the year, our leverage ratio including preferred stock was about 23%. During 2009, we retained a significant portion of our operating cash flow, approximately $430 million, or 54% of our funds available for distribution.

At year-end, our cash balance was approximately $750 million. A portion of this cash balance will be used to redeem all outstanding equity shares of series A. These securities will be called as of April 15th, 2010, at $24.50 per share for a total of $205 million. Shurgard Europe has a 20% interest in a joint venture that has a EUR117 million loan that matures in July of 2010. We are actively working to refinance or renegotiate the terms of the loan. Our Board increased the quarterly common dividend by 18% or $0.10 per share.

Our consistent long-term dividend policy has been to distribute only our taxable income. Taxable income attributable to our common shareholders has increased due to recent purchases of preferred securities and equity stock as well as the reduced depreciation, offset in part by declines in operating income. Future changes in our dividend will be impacted by these same factors, as well as property acquisitions. With that I will now turn it over to Ron.

Thank you, John. I'll start with current trends in our domestic same store properties. We started 2009 at 87.1% occupancy, 0.8% behind the prior year. Through aggressive pricing, promotion, and marketing activities, and solid execution by field operations, we eliminated this occupancy gap by year-end. For the first two months of 2010, these positive trends have continued and we ended February 0.6% higher than the prior year.

Revenue declines have also continued to slow in Q1 2010, consistent with trends in Q4. First quarter 2010 expenses will be impacted by significantly higher snow removal costs. Q1 media will be change both in terms of mix and day part, and we will be in fewer markets. Media costs will be lower.

In Europe, we are seeing similar trends. Europe started 2009 at 84.7% occupancy, almost 5% behind prior year. We ended the year at 85.7%, a full point higher. This trend has continued in Q1, with February occupancies ending 0.9% higher than the prior year. The decline in same store revenue and NOI moderated in the fourth quarter, as compared to the third quarter. Revenue was down 2% in Q4, compared to down 3% in Q3, and NOI was breakeven in Q4 versus down 7% in Q3. Going into 2010, we expect top line revenue trends will continue to improve, resulting in positive NOI growth in Europe. It should be noted that these positive occupancy trends both in the US and Europe are primarily attributable to reduced move-outs, not higher move-ins.

Turning to acquisitions, during the fourth quarter, Shurgard Europe acquired a facility in Central London for about $5 million. This facility has approximately 15,000 net rentable square feet. While a mature property, we acquired it out of bankruptcy and it needs to be repositioned. Opportunities for acquisition in the US are about the same as last quarter. We continue to have more conversations but no consummated transactions. We will remain disciplined.

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

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ryan Meliker of Morgan Stanley.

Hey, guys, just a couple of quick questions for you. I was wondering if you can provide any color for us on two things. Number one, where rates are going through first quarter so far? Are we looking at continued deterioration like we saw in 4Q? Or have things stabilized a little bit more? And second, if you can give us an idea of where you think corporate G&A is going to be in 2010 versus 2009? Are we looking at up a couple points again or do we think things are going to maybe digress in the opposite direction? Any color would be appreciated. Thanks a lot.

This is Ron. I'll touch on G&A and I'll let John touch on rates. G&A we don't expect really any big changes, maybe a couple percent but that's about it. Nothing in the works to materially impact G&A that I know about for 2010.

And I also think on the G&A we disclosed that we think our G&A run rate is somewhere in the neighborhood between $35 million and $40 million per annum, at least through the end of 2010. On the rate side, we are still on a relative basis year-over-year, we're behind last year in what we are charging new tenants to come in to rent space from us. That negative spread has narrowed somewhat but none the less, it's still a negative number. We are down about -- I'm going to say about 3% to 4% and that's throughout -- on average, throughout the whole portfolio. In some markets we're down as much as 10% and in some markets we're actually up as much as 10%. It just really depends on the market. But globally, within our US portfolio, we are still down about 4% in our market rent.

Europe is up about -- somewhere between 8% and 10%.

That's helpful. Thanks a lot, guys.

Your next question comes from the line of Ki Kim of Macquarie.

If I could just quickly follow up on that previous comment, when you say it's down 3%, are you saying the market rates are down 3% or does negative spread between in place and street rates are down 3%?

The year-over-year spread between market rents is down 3% to 4%. If you're interested in what I would say the mark-to-market --

Right.

That's a different question. Unless I misunderstood the original question. But I'll answer that one. This is through the end of February, so just as of yesterday, the negative mark-to-market spread was 7.8% and that compares to the same time last year where we were down 8.9%.

And if things go the way you kind of assume for the rest of the year, where would that mark-to-market average out throughout the year or end up at the end of the year?

I have no idea.

Okay.

That's a pure guess on our part.

It's a little hard at this juncture, February, we're not into the rental season and we've got a significant number of markets impacted by the severe weather, basically from Chicago, east, and from Charlotte, north, DC, the move-in, move-out numbers and kind of what's happening with the rates are a little distorted because of the severe weather.

If I could cheat a little bit and ask a follow-up on that. I've heard mixed things. Did the severe weather kind of net-net help you guys or hurt you guys in terms of same store revenue performance? Because I would think that if there was severe weather people who would naturally -- because of the net move-out season probably wouldn't move out, so would that help you?

I could tell you, and it's not scientific, we've kind of analyzed it in terms of snow and non-snow markets and our move-ins in the snow markets are down 14% versus non-snow were basically flat. But move-outs in the snow were down 22% versus about 10% in the non-snow market so you could kind of draw your own conclusion.

Got you. Thank you.

Your next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

Hi. Ron, I have a quick question. You mentioned that the occupancy through February in the domestic same store portfolio was up 60 basis points year-over-year. Another self storage Company broke down January and February a bit and they noted that January was positive in terms of leasing activity and then February was slightly negative so net-net through those two months it was sort of flat in their portfolio. Did you experience similar patterns through the two months?

No.

Okay. And then just following up real quick, also on your commentary on the reduced move-out activity, assuming that move-in demand remains pretty consistent at this point, is it possible that you would see occupancy decline during the peak leasing season, perhaps?

Well, I think the emphasis here on the improvement in occupancy being attributable to reduced move-outs versus move-ins is you should take away from this that pricing power is still pretty anemic. John just touched on the rental rate. And at the end of the day for our business to really kind of move the needle and get the revenue line really moving in a good, solid direction, we need higher move-ins at better prices. As I touched on earlier, we've got the snow going on. We're in February or March, it's not the rental season, so I think a better indicator of where the business is going to go for the year is going to be probably when we do our first quarter call in May, we'll have a better idea in terms of how March and April are panning out.

Okay. Thank you.

Your next question comes from the line of Dave Bragg of ISI Group.

Good morning to you. Ron, you said that acquisition opportunities are about the same as last quarter. But on that point, have cap rates compressed as they have in other sectors on the transactions that we have seen? Or at least have you brought down your potential cap rate range from the 8% to 10% range you talked about last quarter?

Yes, I -- there's not enough transaction volume to say that 8% to 10% is right. That's kind of what we're thinking about. And as I also said last quarter, I think I did, that we're a price per pound buyer. What is the price that we're paying for property relative to the replacement cost and the rental rates achievable in that particular market. But I don't think there's a whole bunch of empirical evidence in terms of transaction volume to really say 8% to 10% is the right price point.

Just to follow up on that, you almost certainly keep track of what potential construction costs could be in the storage space. What's your view on how much replacement cost has declined over the past couple years?

Pretty meaningful. I mean, I just look at what Dave Doll and the real estate team were able to do last year and what they're planning to do this year, in terms of our core CapEx items, and it's across the board, I mean, we're pretty -- 15% to 20% reductions, we've got GCs doing work for us at basically no profit, just covering their overhead. So on the building cost standpoint, I'd say at least 15% to 20%. Land cost, gee, all over the board. If you're in a market that was in a condo frenzy, like Miami, I don't know how much land prices have gone down but it's got to be orders of 40%, 50%.

Okay. Thank you.

Your next question comes from the line of Jay Habermann of Goldman Sachs.

Good morning, everyone. Ron, just to come back to the reduced move-outs and obviously not seeing the move-ins at this point but I guess to take it a little further, are you basically seeing sort of market paralysis at this point. I know in past cycles, whether it was 2001 you had to move from the Bay Area to markets like Denver, et cetera, Portland, but are you just not seeing the trend this time. I'm sort of wondering what underlying factors might be driving those reduced move-outs.

Part of the reduced move-outs is we had an acceleration in move-outs last year. And if you go back to our Q3 2008, Q4 2008, Q1 2009 calls, in each of those calls, we talked about a very disturbing trend, acceleration of move-outs and in fact an acceleration of move-outs of longer term customers. So as we've come into Q3 of this year, we've been telling people, hey, I think -- we think that the trends are going to be positive in Q4. They're probably going to be positive in Q1. But it's probably going to be due to reduced move-outs because we don't see a lot of pricing power.

So I think the numbers that we're reporting both at year-end and through February are an affirmation of the trends that we've been -- that we talked about a year ago, as well as what we were anticipating coming into Q1 of this year. We'll see what happens as we move into the rental season in terms of really true customer behavior. Of course, we're happy that the move-outs are down. That's a great sign. Customers are staying longer and obviously the properties are filling up.

And what's the data year-to-date in terms of move-outs versus move-ins?

Okay. Move-outs year-to-date are -- do you want -- you probably want the change, right?

Sure.

Yes. So move-outs are down about -- this is in the same store pool, about close to 14,000, and move-ins are down about 6500, so net-net, we're up about 7,000 customers in the first two months.

Okay. Thank you.

And we were positive in both January and February.

Positive in both. Thanks.

Your next question comes from the line of Christy McElroy with UBS.

Hi, good morning, guys. Just following up on your comments regarding the EUR117 million Shurgard Europe JV that's coming due in July, has the market for Pan-European lending come back such that the loan could be refinanced without you needing to step in and provide the capital? I know it was pretty closed as of January. And if the lending market is still sort of shaky, is this something that could be used as leverage for Shurgard Europe to buy out its partner?

That's a big question.

It's a good question, Christy. On the lending environment, I don't know that it's changed that much. Maybe it's gotten a little bit tougher. So my gut feeling is that we will get it refinanced. I don't know that it will be with the same lending group. And I doubt that it will be under the same terms and conditions that we experienced over the past couple of years with that loan. But our team in Europe is really the team that's leading the charge here and they're doing an outstanding job to try to get this loan put in place. We don't know at this point in time what needs to happen in terms of whether we need to pay down the loan, put some more equity into it or what have you. It's still too early in the process right now to comment on that. And then with respect to leverage, using leverage to buy out our JV partner, we really don't have anything to comment on that at this time.

Okay. Thank you.

Your next question comes from the line of [Andrew Ralue] of Banc of America-Merrill Lynch.

Hi, thank you. If I could just go back to your year-to-date occupancy. Given that you have positive momentum into 2010, with occupancy, but as you mentioned because pricing remains anemic, as you approach peak leasing season, what are you expecting and will you be doing anything differently in terms of strategy?

Well, Andrew, could you narrow that a little bit in terms of strategy with respect to what?

Sure. I guess I'm trying to think, you know, given the trends you mentioned last if I try to think about what your strategy was going into last year's peak leasing season versus this year, I just want to get a sense if you guys are approaching this peak leasing season any differently or will it be the same way as last year?

Andrew, I'd tell you that we -- our strategy will continue very much the same as last year, unless we start seeing a marked improvement in demand for the product. So until that point in time, we're going to continue to conservatively price the product. We're still offering the $1 special. We're still on television, advertising the product. We're still going to be relatively conservative with how we increase rental rates to existing customers. So right now, given what we've seen so far, our strategy is very much the same as last year, unless something turns that around which so far we haven't seen that.

Great. Thank you.

Your next question comes from the line of Michael Mueller of JPMorgan.

Yes, hi. Question on Europe. I mean, Ron, you threw out some pretty good stats in terms of where the rents seem to be rolling to and the occupancy being higher year-over-year. I guess when we look at that compared to the US, I mean, are the markets just that different at this point or would you characterize it more as the Europe business got slammed earlier in 2008 so you're just kind of digging out of a bigger hole a little faster?

Well, Mike, as I think about that, each of the markets in Europe are a little -- actually, they're a fair amount different. London is a lot different than Paris, is a lot different than Stockholm. Then you come here to the US, Florida and the Southeast have been hard hit and very challenging for us. In the last six to eight months, California has been very challenging. It's very hard for me to draw a macro conclusion on Europe versus the US. We're obviously very excited that Europe's moving ahead. They moved down faster than us. Steven was very aggressive in cutting rates as well as accelerating media advertising and expanding promotional discounts. And I think he got us the positive momentum there in Q4 and coming into Q2, is great. As I said, I think you'll see some positive NOI out of Europe this year but it's a little hard for me to generalize Europe's trends versus the US because we have such differences, especially even here in the US.

Okay.

Does that answer? I'm not really answering your question because I'm -- I don't --

Yes, I mean it doesn't just because the numbers are so far off, but I mean, I think you probably answered it as best you could.

Yes, I'm not sure. I've seen some people say that Europe's a leading indicator for the US. I'm not sure I would go there. Just the whole supply situation in Europe's so different than the US and then our concentrations in Europe are different than the US market. So I'm not sure I could extrapolate Europe's going to be a leading indicator for the US.

Before I hop off, John, could you just quantify what those snow removal costs were in the first quarter and the fourth quarter?

Mike, I don't know the fourth quarter because it's probably a lot of that cost is really going to hit in the first quarter. We're estimating right now about a $1.5 million to $2 million of snow removal cost.

Okay. Great, thank you.

That changes with each snowstorm, Mike.

Okay. Great. Thanks.

Your next question comes from the line of Todd Stender with Wells Fargo.

Hi, good morning, guys. In general, this is for property taxes, in general, are you having any success containing property tax increases, just in light of strained state and municipal budgets?

Todd, we are having success in terms of appealing assessed values that we've been somewhat successful, and real happy with. The problem is is a lot of municipalities are also affecting and increasing the rates, the tax rates and those you can't -- I mean, you just can't fight the rates. So overall our tax expense -- our property tax expense has been rising on a global basis. So we do the best we can on what we can fight but the municipalities have kind of fought a different battle on the rate side. That's a battle that's very, very difficult for us to win.

Can you give us any guidance on the percentage increase you expect for this year?

I would say that it would be probably -- we're estimating somewhere in the neighborhood of about 4%.

Okay. Just switching gears, are there any markets that you have identified where you can come out of this downturn owning a bigger slice of market share, just based on the fact that you probably have better financial footing than most of your private competitors.

So Todd, is the question, are we targeting specific markets to increase share?

Yes.

The answer is no. I mean, we're open to opportunities across the US. We operate in 38 states. We're in the major metropolitan centers, so we're happy to buy in Miami, just as we are in Houston, just as we are in LA. Assuming we can get our head around what's the opportunity at the asset. We're happy to buy empty properties as well as full properties. It really depends on what that opportunity set is. But we have no particular target market.

Thank you.

Your next question comes from the line of Michael Salinsky with RBC Capital Markets.

Good afternoon. Ron, first question for you. A couple of your peers in their guidance that they provided suggested the potential for positive revenue growth in the second half of the year. Given the embedded roll-downs that you guys have seen, occupancy pushes, things of that nature, would you expect your portfolio to perform similarly?

Mike, we don't really make revenue forecasts out that far. We kind of give you real-time data in terms of February and you can extrapolate from that however you want.

Okay. Fair. And then just touching upon -- I guess touching upon the limited opportunities I think you mentioned. Is it more a function of pricing? Is it a lack of assets? A lack of asset quality? What seems to be the big driver there?

Well, I'd say there's two big things, macro things, if you think about it. One, if you're an owner and you have substantial equity in your property, you're probably not thinking that this is the all-time great environment to sell. Many buyers have limited to no financial capacity. Operating trends have been down. And so you're waiting for probably more favorable operating trends and a more robust competitive environment in terms of potential buyers for the assets. Macro trend two is if you don't have equity in your property, meaning you overpaid and the loan is substantively worth more than the value, whether you use an 8% or a 10% or a 7% cap rate, the bank essentially owns the property and has been widely reported banks are not exactly moving aggressively to foreclose on assets, especially if there's -- they're paying interest. And with interest rates down where they are, doesn't take much to keep the loan current. So I'd say those are two kind of big macro trends that are impeding acquisition or transaction volume.

You haven't seen any change in the latter, year-to-date, at this point?

The only observation I would make is people are less optimistic that -- or not optimistic growing a little more impatient in terms of wanting to sell. If you wanted to sell two years ago and you've been holding, you're probably a little less patient today in terms of wanting to sell than you were two years ago.

Thank you.

Your next question comes from the line of Ross Nussbaum with UBS.

Hey, Ron, good morning. Ron or John, can you talk about your appetite to redeem additional preferreds? Looks like you've got a whole bunch trading at 7.25%-ish, maybe a little better than that and you have a whole bunch that can be redeemed. How do you think about your capital when you say, okay, I can buy back my stock at a 6.5% cap, I can buy my preferreds at 7.25%, I can potentially buy assets in the open market at 8%-plus if there are any. How do you think about all those opportunities vis-a-vis your growing cash balance.

I think what you're seeing is that we're going to -- we consider the cash an important asset and we're going to patiently wait to deploy it when opportunities come to do something really on the balance sheet side of it, we'll do it, which is redeem the equity stock like we're doing here this quarter. A year ago, we were out in the market, buying preferred stock at 10% and 11%. And we spent a fair amount of money doing that and we're hopeful in terms of the acquisition front but we're going to be patient in that regard. In terms of redeeming preferred I'll let John talk about what we could issue versus redeem at.

Typically, when we redeem preferreds we refinance so-to-speak by issuing a lower rate preferred, thereby still maintaining the level of leverage and just really knocking down the coupon that we pay. Today, as you mentioned, we do have a number of preferred issues or series that are callable. Roughly I think we have about $900 million. But to issue a new preferred, it's going to be well in excess of coupons that we can redeem at. So until such time that we see that we can issue preferreds, new preferreds at levels less than existing preferreds, we're probably not inclined to be redeeming any of our outstanding preferreds right now.

So the series A was obviously just a one off, given the nature of that security.

That one had a 10%. That one was well above what we can issue a preferred at. Not that we need to because we have cash to do that particular one. Plus, it was kind of an unusual security as everybody's aware of and it was no longer -- we felt it was also no longer necessary in our capital structure, so the earliest we could redeem it was coming up March 31st and so that was the decision to finally take it out.

Good riddance. Thanks.

Your next question comes from the line of Michael Knott with Green Street Advisors.

Hey, guys. Ron and John, Ron, I think you mentioned that the media spend in 1Q would be down compared to last year. I know last year was pretty high. But in the context of still a tough new move-in environment, how do you think about the media spend and maybe why not consider being more aggressive given the demand conditions you describe?

That's a good question, Michael. Really, the swing in the media spend, Q1 2009 to Q1 this year is cable. We spent I want to say about $3 million in cable last year as a test and our analysis, albeit not scientific, basically showed us that if we're getting anything for this, it's really hard to figure out and so we dropped -- the big swing year over year is we moved out of cable this year. We've also, as I touched on a little bit, shifted day parts for the media and are doing more fringe prime. So our cost per TRP has moved up, so to your point, it's a tough rental environment, why aren't we spending more, well, we are spending more per TRP this year versus last year.

Okay. Thanks.

Your next question comes from the line of Paula Poskon with Robert W. Baird.

Thank you very much. Just return to the acquisition environment discussion. Obviously with so much cash on hand I'm sure you must be the first call that any potential private sellers would make which must provide you with a unique view of the opportunities that might be on the market. Are you currently evaluating any sizeable opportunities from private sellers and if so are you seeing more activity or activity concentrated in certain markets?

Well, Paula, I think I touched on the -- I'll repeat what I think I said last quarter, which was the phone's ringing more. People are calling more often. People that we talked to a while back and said that we were interested, they're calling back but we still have no consummated transaction. I don't know if that addresses your question but we've got nothing consummated but the phone's ringing more.

But are you seeing the activity -- are you seeing the phones ringing from certain markets more than others? More activity by market?

I couldn't answer that. I'm sure if I had Dave Doll or Mike McGowan here, they could answer that. I'd say there's nothing market specific that I recall.

Okay. Thanks. And I just have a housekeeping follow-up question on the $1.5 million in snow removal cost. That's the total cost. How much of -- how much did that exceed what you would normally see or what you budgeted for?

I'm sorry, Paula, when I answered that question, what I should have said that's the incremental increase.

That is different.

Yes.

Great. Thank you very much.

You're welcome.

(Operator Instructions). Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Hi, it's Jordan Sadler. I just wanted to follow up. You guys are not typically prognosticators but in your commentary you mentioned that you think Europe will see positive NOI growth this year and I'm curious about that forecast or anticipated growth, if that's just a -- you know, what that's a function of. Is that a function of your confidence in what you're seeing in the markets this early or -- and does that make you maybe more interested potentially in investing to a greater extent through the Shurgard Europe joint venture?

Okay. Well, the trends in Europe have been getting better for the last couple of quarters with basically going flat NOI growth in Q4. As I touched on, rates are up, occupancy's up. We'll probably spend less media this year. As I touched on earlier, Jordan, Steven and his team really hit the accelerator in the first half of last year on the media spend to address the erosion in occupancy. So our guess here is at least through February, the media spend's going to be lower than last year and with positive -- where the spread is in terms of rental rates and where we're moving in terms of occupancy and reduced media, kind of leads one to conclude we should be positive NOI. How much, I don't know.

Okay. Would that make you more inclined, given sort of the potential for growth there, I know that's not necessarily a leading indicator for the US but would that mean given the ability to gain traction that you'd be more interested maybe than you previously were in investing incrementally through Shurgard Europe?

Well, the Shurgard Europe is a joint venture with the New York Common Retirement Fund so it takes two of us to want to invest more and I would just say that both parties are always interested in value enhancing acquisitions, whether it was a year ago or today. So the improvement in trend doesn't really change our perspective. A good deal -- we would have done a good deal last year just as we do a good deal today.

Could you just remind us of the mechanism on the first and second Shurgard joint venture, should you decide that there was an opportunity there? Is there a buy, sell or what?

Jordan, either party can elect to kind of come out of the joint venture by electing to either sell their interest in which case the other party does have an opportunity to -- well, I guess if they -- if the other side decides they want to sell their interest, we have an opportunity; we, through Shurgard Europe, have an opportunity to buy that interest and if we elect not to, then they can go sell it to a third party. We also could elect to buy their interest at some stipulated formula which we could trigger now at any time on either one of those joint ventures.

Okay. Thank you.

Your next question comes from the line of Ki Bin Kim with Macquarie.

To follow-up on that previous question. Is the buy, sell pricing, is it on appraisal or depending on how it's done, is it based on like you said a trigger mechanism, if you could kind of describe the formula for that.

Again, it's not a buy, sell. It's the other side could elect to come out at which case we have an opportunity to buy their interest and if we fail to buy their interest they could go market it to a third party or we could elect to buy them out at a stipulated price. Without going through all the complications of the agreement, I think you can assume that fair market value is probably the price either way that would have to be paid to buy them out.

Got you. And do you guys do appraise NAVs for Shurgard Europe or when was the last appraised NAV?

NAV? Last year. The joint venture requires that an appraisal be done on all the Shurgard operations each year.

And if you could remind -- is that in the 10-K or could you remind us what that was last year, what cap rate.

It was not in the 10-K and it's not a number that we have previously disclosed.

Got you. Thank you, guys.

Your next question comes from the line of Jay Habermann with Goldman Sachs.

Ron, just switching back to the US, can you just update us on just what you are seeing in terms of product and opportunities on the market? I mean, especially for the quality that you would seek to acquire, I mean, are we talking a couple hundred million or are you seeing as much as a billion. Separately you mentioned price per pound as the driving metric. Where are you seeing pricing today relative to replacement cost.

I'm going to disappoint you here in this answer, okay? There's not a lot happening, okay? We don't have any transactions consummated and the -- so I can't say that it's $100 million or $1 billion or anything like that. The phone is ringing more. We're more active. We're talking to more people. But there's nothing really consummated to give you kind of a true data point to say this is where things are trading. So I know that's not the answer you wanted but I really -- there's nothing for me to really point to.

So when you mentioned sort of price per pound, what's your sort of sense today of what pricing would be versus replacement cost?

Well, as I think I started saying a year ago, year and-a-half ago when we basically stopped all the development activities in Europe and wound down whatever we had here in the US, I believe you can buy below replacement cost. How much that is a per transaction but someone asked what has happened to replacement costs. Well, the steel, the roofs, the land, it's all less than it was last year. And you've got most of the industries at negative NOI trends so you can buy basically below what -- I think you can buy below what it cost to build new. How much, we don't know because we don't have a lot of transactions to point to but that's our belief.

Okay. Thanks.

Your next question comes from the line of Smedes Rose with KBW.

Hi. Thanks. We're just wondering, your CapEx spending that you included in your 10-K also has a line item for a $10 million construction commitment. Wondering what that's for. Also, trying to back into same store numbers for the fourth quarter, looks like Illinois was particularly sort of hard-hit in the fourth quarter. Just wondering, was there a tough year-over-year comp there or is there something going on in that market, maybe relative to some of your others? Thanks.

Yes, well, to comment on the Illinois property taxes, yes, it is a tough comp. Last year we had -- in the fourth quarter, we had an overestimate of our pool that was turned around in the fourth quarter of 2008, which gave us a very difficult comp, which is what you're seeing this year. So you're seeing Illinois property tax or the NOI number from our Chicago properties being negatively affected in the fourth quarter. So that's just really, an accounting on how we did the accrual in 2008 versus 2009.

In terms of the construction stuff, really, that's properties I believe that we have under redevelopment.

Okay. Thank you.

Your next question is from Ross Nussbaum with UBS.

Hey, Ron. What was the logic behind expanding the Board from 11 to 13?

Logic? Well, we had two outstanding individuals that were available, Ron Spogli and Dick Poladian, and they were available and so we wanted to add them to the Board and you can probably look at the proxy and see that some of our directors, we have several directors 70-plus and so we want to bring on new directors sooner rather than later.

So I should infer that 13 may not be the -- your long-term goal in terms of the size of the Board?

I wouldn't infer anything, Ross.

Okay. Other question was on the legal office there, what prompted the change there?

Well, we didn't have -- our previous General Counsel, Brian, left last year and so this is his replacement, Steve Glick.

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

I want to thank everybody for attending our call this morning or this afternoon if you're in New York, and we'll be talking to you next quarter around the beginning part of May. We'll talk to you then. Have a good day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.