Public Storage (PSA) 2011 Q2 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 second quarter 2011 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). Thank you. Clem Teng, 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 the usual format, followed by a question and answer period. However, to allow for equal participation, we request that you ask only 1 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 risk and uncertainties that could cause actual results to differ materially from those projected in these statements. These risk 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, August 5, 2011, 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 the audio Webcast replay of this conference call on our website at www.publicstorage.com. I'll turn the call over to John Reyes.

Thank you, Clem. As outlined in our press release, our second quarter core FFO per share was $1.43, compared to $1.27 last year. A 13% increase. 3 items primarily drove this growth. First, our same store net operating income increased by 6.2% or approximately $15 million, representing $0.09 per share. Second, our investment in Shurgard Europe added $0.05 per share, primarily from the acquisition of an 80% interest in 2 joint ventures along with a 13% higher Euro to dollar currency exchange rate. Third, our non-same store properties added another $0.03 per share. These items were partially offset by higher G&A costs of about $0.02 per share. Our same store net operating income benefited from higher revenues of 4% along with flat operating expenses. Higher property taxes and property payroll expenses were offset by lower advertising, primarily due to lower television costs.

Our G&A expense for the quarter was $2.5 million higher than last year. This is primarily due to an additional $3 million for an incentive plan that is based upon 2011 same store revenue growth. We expect this plan will add $13 million to our 2011 G&A expense compared to 2010. We recently completed several capital transactions. During the second quarter, we issued $375 million of 6.5% preferred stock, and we redeemed $518 million of 7.25% preferred stock. After the quarter we issued $488 million of 6.35% preferred stock, and called for redemption, $425 million of 7.25% preferred stock. In the third quarter, there will be an associated EITF D42 charge of approximately $13 million or $0.08 per share. As a result of these transactions, our quarterly preferred dividend will be about $1 million lower in the third quarter and $3 million lower in the fourth quarter as compared to the same periods last year.

As previously announced, Shurgard Europe acquired in early March the remaining 80% interest in 2 joint ventures that owned 72 properties for $238 million. The transaction was initially funded as a dollar denominated loan by Public Storage. In mid-June, our partner in Shurgard Europe funded its proportionate share of the investment. Although the loan bore interest at 7%, it effectively was a participating loan. Accordingly, from early March until mid-June, we received 100% of the income from the 80% interest in the 2 joint ventures. After mid-June, we began receiving our 49% share from the joint ventures. Our second quarter earnings were about $3 million higher than they otherwise would have been due to this brief period where we received 100% of the income.

Also in the quarter, we agreed to purchase, through mergers, the remaining partnership interest in 5 Public Storage sponsored partnerships for $154 million. These partnerships own 47 properties with 2.7 million square feet. The transaction, which is subject to conditions, is expected to close in the third quarter. With that I will now turn it over to Ron.

Thank you, John. We had a good quarter benefiting from higher occupancy and better pricing. We added 31,000 net customers due to higher move-ins, offset in part by higher move-outs. We ended Q2 with record same store occupancy of 93.1%, and maintained a healthy year-over-year spread of 1.5%, despite a 50% reduction in media spend. Street rates were also higher. Same store revenue per available foot grew by 4% compared to 3% in Q1. At the end of July, occupancy and asking rents were also higher than the same period last year.

All of our top US markets achieved positive revenue growth in Q2. In addition, despite lower media spend, all but 1 had greater move-ins. Los Angeles, our largest market, grew revenues by 1.5%, compared to 0.6% in Q1. Move-ins grew by 1.2% despite a 58% reduction in media spend. San Francisco, our second largest market, increased revenues by 3.6%, up from 3% in Q1. Move-ins were up 2.1% despite a 56% decline in media spend. The Southeast markets, Florida and Georgia, grew by 4%, up from 3.4% in Q1. Move-ins were flat to last year while our media spend was down 42%.

The Pacific Northwest markets, primarily Seattle and Portland, grew by 3.5% revenue up from 2.4% in Q1. Move-ins were up by 3.8% while our media spend was flat. The Northeast markets, Boston, New York, DC and Philadelphia, grew revenues by 5.9%, down from 6% in Q1. Move-ins also declined by 3.2%. Media spend declined by 23%. Our top-performing market was Detroit at 6.3% revenue growth. Our third quarter media spend is expected to be about the same as last year.

Moving to our European operations. Our same stores had top line growth of 1%, resulting from higher realized rents and higher occupancies. We ended Q2 with positive occupancy spread of 0.4%, up from a negative 0.2% at the end of Q1. We expect modest revenue growth for the balance of the year. Operating expenses were 4% higher primarily from higher advertising and property taxes, resulting in negative NOI growth of 1.5%. With respect to acquisitions, we acquired another 3 properties for $40 million with about 300,000 net rentable square feet. In summary, our trends remain solid. Occupancies are higher, asking rents are higher, our cost of preferred securities are lower. Our leverage is lower. We feel pretty good about delivering double-digit growth with debt and preferred at 16% of capitalization and in excess of 4.5 times fixed charge coverage.

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

(Operator Instructions). Eric Wolfe with Citigroup.

Your peers have done about $0.75 billion deals this year. I assume, as the largest storage REIT, that you've taken a look at pretty much everything. And just given your size, platform and cost of capital I would also assume that you would have the most synergies from operating these assets. So what is it about the deals they've done that you haven't liked or is it just that they've been willing to pay more for it?

Hi, Eric. This is Ron. I'd say there's 2 principal things. Quality and price.

So the quality is not high enough and the price was too high?

Yes.

And where did those deals shake out versus where you would have liked them to? Is it that you were off by a little bit or by a lot?

A couple of them we weren't even -- actually, several of them we weren't even interested in. And then a couple more the pricing just did not make sense to us.

And then just second question is, given where financing costs are and given what you think is going to happen in terms of NOI growth for the next couple years, what valuations do make sense right now and where are you a buyer?

Eric, as we've mentioned on a couple other calls, it really depends on where the property's located, whether it's stabilized, not stabilized, a whole variety of things. So there's no one answer to that question.

Ki Bin Kim with Macquarie.

Quick question. What was the cause of the media spend being down so much? Or the reason why you chose to do that?

Because our occupancy levels were so high, Ki, we were able to scale back television advertising costs quite a bit. That's really the main reason.

So from a year-over-year comp standpoint, is that something you want, that trend, is that going to stick around for the next couple quarters?

As Ron mentioned, we think that our television advertising costs for the remainder of the year will be about flat compared to last year.

And just a second part. If you had to split the rental revenue, same store revenue growth between rental rate increases versus new customers, how would that look like?

Rental rate increases -- most of it is from the increases to existing tenants, combined with higher occupancy. The new tenants that are coming in are coming in flattish to down compared to last year as our market rates are pretty flat.

Faruk Yala with Morgan Stanley.

I'd like to know what are the renewals, what percentages of renewals you're sending out right now for August, September. Also, if you could tell us that in dollar terms, what is the average dollar amount being sent out and maybe by market.

I'm sorry, that's a pretty difficult question for a conference call, by market. Let me just tell you broadly what we're doing. Let me tell you what we did during the first half. The first half of the year we sent out about 3.2% less renewals than we did last year during the first half. The renewals that we did send out during the first half of this year averaged about 8.5%, compared to last year, which was about 5.3%. During the second half of last year we sent out, what we're scheduling to send out this year versus last year, we're scheduled to send out about 25% more letters in the second half, or increases, I should say, than we did last year. The projected increases this year will be about 9.1% versus 6.7% last year. The bulk of the increases that we will be sending out this year have already happened. They happened effective July 1. Whereas last year, it was spread from July into September. Not quite evenly. We sent out the bulk of them, though, on July 1 of last year but we did have a good chunk that went out in August as well as September. This year we will have no increases in August or September.

So what does that translate into in terms of average dollars increase in terms of the increases?

You could take 25% volume variance, plus about a 40% rate variance on about 25% of the customer base and work out the math that way.

I was thinking more in terms of monthly rental increases, monthly dollar increase on average per customer.

We don't have that information available to us right now.

Christie McElroy with UBS.

You've obviously seen some success raising occupancy despite cutting back on media spend. There's been some talk among your peers about cutting back on concessions, one that did so pretty meaningfully through the second quarter. Actually saw a negative resulting impact on occupancy. So I'm wondering if you've cut back at all on concessions. And then to ask the rent question a little differently, if there's any way you could dissect, if you look at the 2.2% growth in your realized rent per occupied square foot, I know a lot of it was the in-place rent hikes but I'm just wondering if any of that had to do with maybe some burn-off of concessions that may have contributed to the upside in that number, or higher asking rents, what were your asking rents year-over-year?

Yes, Christie, our concessions, we gave out about the same dollar amount of concessions as we did last year. So there was no benefit or detriment from concessions on us. We kept discounting throughout the period, notwithstanding the fact that we had higher occupancy. We kept the concessions going for 2 reasons. One, we knew we were cutting back on television. And then the second reason is because we were sending out more aggressive rate increases to our tenants. We wanted to be able to backfill any vacancies that may have caused move-outs started accelerating.

In terms of the rental rates that are charged to new incoming tenants versus last year, it's about flat, Christie. And our move-ins are up, as Ron indicated somewhat compared to last year. So we're not getting a big lift in our revenue growth from new move-ins.

So if I just look at the rent per occupied square foot that was attributed almost entirely to the increase in in-place customers, then?

Correct.

Jay Habermann with Goldman Sachs.

Ron, could you talk a bit about what you're seeing out of the banks and their willingness to sell product to you? And could you provide more detail on the limited partnerships you're acquiring and what sort of returns you expect upon closing?

I've got David Doll here so I'll let him talk about the banks. With respect to the partnerships, there's a pretty extensive public filing already that we did with the SEC and we're in the solicitation period. So in that filing, you can figure out what the yields and price per foot are and all that for the partnerships. With respect to the banks, I'll let Dave answer here.

Jay, from the bank's standpoint we're beginning to see an uptick in their resolution of existing debt with borrowers. Most of those are one-off transactions so they're not large portfolios coming out of that weaning of their balance sheets. But there has been an uptick of activity from the bank's standpoint.

Any particular regions or parts of the country where you're seeing that show up more so than others?

We're seeing more on the East Coast these days than we are on the West Coast.

Todd Thomas with KeyBank Capital Markets.

Just first, a quick follow-up on a comment that you just said in response to another question. That you're not sending out increase letters in September, October of this year. I was just wondering if that's a change in strategy somewhat because of weaker economic data in recent weeks or was that planned?

That was planned, Todd. No, we accelerated the timing. We really don't do a whole lot during that time frame traditionally. And we felt this year, rather than do them then we decided to accelerate them and basically get all the letters or the increases out earlier this year.

Todd, we have to give the customers 30 days notice, so the process of deciding what date and who is actually done really in May because the letters go out in June effective July 1.

And then, Ron, I was just wondering, a couple of other management teams this quarter made the statement that the discretionary renter is no longer around, that the renter base is comprised of mostly needs-based renters, unlike in front of the last recession, a couple years back. Do you agree with that as you think about your portfolio and the industry today?

I don't know that the customer has changed. And, to be honest, I don't know how they know. If you look across our portfolio, I cited move-in volumes across various markets from Los Angeles to San Francisco to Florida to Seattle. Move-in volumes were up across the platform, despite lower media spend, other than the Northeast. The Northeast has been strong for the past year, year and-a-half but the rate of growth is slowing in the Northeast. Still great absolute revenue growth, 5.9%, but it's slowing. We're able to drop media spend and still have higher move-ins. So I would say that fundamentally that would indicate to me the customer base has not changed really at all.

Jeff Spector with Bank of America-Merrill Lynch.

Good afternoon. If we can talk a little bit about the housing market and it seems that trends continue to weaken there. The customer you're seeing coming into your portfolio, are those customers that have been foreclosed on? Forced out of their homes? Or those are folks that have sold in the downturn and now are renting?

Jeff, over the last couple years we have seen more people come into our space as a result of foreclosures. And probably less people come into our space as a result of moving because there's less moving velocity in the economy. But as I just answered the other question, which I think Todd asked, if you look across our platform we're seeing higher move-in volumes across the entire United States, even in Las Vegas. The only place where we're not seeing it is really in the Northeast. So all indications, from our perspective, and we're at record high occupancies, is that the customer base is essentially the same. It's people moving from changes in life circumstances.

So basically if we continue to see home prices decline here, there's really nothing to read into it that you may start to see less demand in your portfolio for self storage?

If the last set of stats that I saw on home prices, I think Detroit, if it wasn't the worst, it was near the top 3 in terms of declines in home prices. And we had record revenues in Detroit this quarter at 6.3%. Detroit finished the quarter, I want to say, at about 96%, 96.5% occupancy.

[Gotham Garr] with Credit Suisse.

Purely from a same store NOI perspective, I think last quarter Illinois was the weakest, it had a 2.4% decline. And Texas was about a 7% increase. Has that trend changed? And what are your expectations for the different submarkets over the next 12 to 15 months?

The Chicago market on an NOI basis has been one of our weaker in terms of the big markets. Part of the problem is not on the revenue side. It's on the expense side due to some property taxes, as well as one of the big things was snow removal costs this year versus last year. That will obviously go away and it should get back to a positive trend going into the third and fourth quarter. Texas has been strong and it still remains very strong, particularly Dallas. Dallas, Austin, San Antonio have been very good. Houston's probably the most weakest of the Texas markets, but nonetheless it's positive trending.

Let me try to give you a little more color on that as well, to what John said. If you look at our top 5 or 6 markets in terms of revenue growth quarter-over-quarter, it's Detroit at 6.3%, Dallas at 6.2%, New York at 5.9%, Northern Virginia/DC at 5.7%, Philly at 5.4%, and Minneapolis at 5.3%. At the bottom here is LA at 1.5% and Sacramento at 2.4% and San Francisco's in there at 3.6%. But if you look at the sequential rate of change in the revenue growth, at the top of the group you're going to find Portland at 2.1%, Orlando at 1.8%, Minneapolis at 1.6%, Tampa at 1.4%. And then there's Los Angeles at 0.9% and San Francisco at 0.6%. And down there at the bottom, markets that are actually slowing down a little bit are DC down 0.6%, Philly down 0.3% and New York down 0.1%. So it touches on, the growth has decelerated in the Northeast and picking up on the coast and the Southeast.

Michael Knott with Green Street Advisors.

Ron, just curious your opinion on, if we do head into a recession here, do you think your currently strong trends will weaken somewhat or do you think it would be a non event, as one of your peers seemed to suggest this morning?

Michael, peers -- I'm not sure we have any peers. But so far we're at record high occupancies and we're seeing growth across the platform. So if there's deterioration in the business, we're not seeing it right now. Does that address your question?

Yes. I'm just curious your thoughts on, do you think self storage is recession-resistant or not? What would your take-away be from the last cycle as it might apply to if we do have a very slight dip in economic activity here?

I think those words are very appropriate. Recession-resistant. In particular, in our portfolio, the West Coast has lagged the rest of the portfolio in terms of growth. So we're sitting here looking at, sometime next year the West Coast markets will be picking up and leading in terms of growth. So I look at our portfolio as we've got some momentum in the portfolio and some growth still to go because of our concentration here on the West Coast. But I think your term, recession-resistant, is very appropriate.

And then just from a capital allocation standpoint, how do you think about long-term or even intermediate term rental growth in secondary markets as compared to coastal markets? It was suggested earlier this earnings season that maybe the secondary type markets really haven't trailed coastal high barrier peers all that much over historical period and maybe the underwriting that causes cap rate spreads to be 150 basis points or so is too wide and not right. What's your view on secondary markets versus coastal markets from a capital allocation standpoint?

I'll be rather blunt. I will take Manhattan or Northern Virginia or Los Angeles over Cleveland or Cincinnati, Ohio any day.

Todd Stender of Wells Fargo Securities.

My question had to do with the completed conversion of the facility in LA. Do you have any other opportunities for that and what kind of markets would you look at?

That was an existing opportunity of a property that we owned here in Los Angeles. And we don't have many more of those opportunities in our portfolio. There might be 1 or 2 coming down the pike in the next couple of years, but nothing further. It's a great site along 2 major freeways in an area that we didn't have product, so it will fit well inside our portfolio.

What' market is that in and do you know any of the occupancies within that market?

It was in the Torrance market along the 405 freeway just north of the 110.

And that submarket we're pretty fully occupied, 90%-plus.

Paula Poskon with Robert W. Baird.

Given the operating trends that you're seeing, particularly around occupancy, do you expect the seasonal decline in occupancy heading towards the winter to be somewhat more muted in the coming months? And if so, by how much?

I wish it would be muted. I don't expect it to be muted because there's nothing that I've seen in the trends that would suggest that. So I think it's going to be very comparable to what the seasonality has been, at least over the past couple years.

Kayo Okusanya with Jefferies & Company.

Just wonder if you give a sense on what you are seeing in regards to operating trends both in July and the early part of August.

I think I gave you that we were higher occupancy at the end of July. I want to say about 92.9% versus 91.6%. And our asking rents were higher at the end of July than they were last year. In terms of August, that will be in our Q3 results.

And then second question with regards to opportunities to do things internationally. I know some of the Hughes assets. There's always been talk about you possibly doing something additional in the UK.

I'm sorry, I'm not sure what your question is.

My question is your thoughts on further international expansion, just given some of the Hughes assets are in Canada and in the past there's always been talk about you doing something in regards with the public UK REIT.

We don't comment on mergers or public company acquisitions on a conference call. And the Shurgard Europe, we own 49% of it, our partner, New York Common Retirement Funds owns 51% of it. So expansion plans over there, really it's a joint decision. We have, in some sense, had a meaningful expansion there by taking out our joint venture partner which was about $240 million earlier in the year. So you could look at that as, in one sense, as expansion in Europe in both Public Storage and New York Common contributed to the funding of that acquisition. With respect to Canada, that's really, the Hughes Family owns that and that's really their decision in terms of what they want to do with it.

Just the last question. When you take a look at market conditions right now, under what circumstances would you feel more comfortable trying to push your higher street rates?

Right now we're not going to be pushing our street rates. We're going to be competitive. We believe right now our rates are higher than where the market is right now. So there's no sense in us being aggressive pushing rates right now. And I can't tell you why the market's not raising their rates but we feel we don't need to be doing that right now. As we mentioned before, growth in our revenues is going to come from rental, increasing the renewals to our existing tenant base, and we're still living by that strategy. And we'll continue that for the remainder of the year.

One other thing you should know, or put in your mind, is starting July, certainly August, the balance of the year is a net outflow. So occupancies decline after July each month. So in terms of being aggressive on rental rates, we won't because we want to be able to backfill that space from customers moving out on a seasonal basis.

Michael Mueller with JPMorgan.

First, Ron, can you just repeat what you were saying about the July occupancy levels, the July end occupancy levels? And then the question is, I think you switched over the way you do Europe pricing recently to conform more to how you do it in the US. I was just wondering what you could tell us about how that's progressing.

The July occupancies I quoted were 92.9% versus 91.6%. And with respect to Europe and the pricing, that's just gotten underway. So it's too early to say what will be happening or the impact of that in terms of our having greater participation in the pricing in Europe versus not. So it's too early to tell.

Smedes Rose with KBW.

I just wanted to ask you, on the partnerships you're buying out, are there more of those that you could buy out over time? And then just in terms of the effect on your income statement, that basically eliminates most of that minority interest or other noncontrolling interest in subsidiaries as these are consolidated?

Yes, on the second question, the accounting, you're correct, it's minority interest. On the first question, how much, this represents about half of all of our minority interest, excluding Shurgard Europe.

Okay. And was there a reason for the timing of why buying these out now? I was just wondering, more color, because these are old, established partnerships or limited partnerships?

Yes, they're about 30-plus years old. There are a variety of things that went into the decision. Again, there's a public document that you could go through and read all about that.

Yes, it's 300 pages. But yes, we'll crawl through it. Thank you.

Ki Bin Kim with Macquarie.

Just a quick follow-up. On your comment about decreasing street rates, I was wondering if you could provide perspective on year-over-year basis because we know that street rates go down because it's past peak rental season. But from a year-over-year perspective how would that look like going forward?

Ki, at the end of July, the street rates were higher than last year. Is that your question?

Yes, along that, right.

At the end of July, they were higher. But as we move through August, September, October, we will be reducing them due to seasonality.

But still higher year-over-year?

I don't know what they're going to be in August, September, October, but at the end of July they were higher.

And are you strictly following the output from your pricing systems or are you keeping a little more subjective given the negative macro news we've seen?

I'm sorry, your question again? Could you please repeat that?

Yes, sure. You have pretty sophisticated pricing systems that look at occupancy levels and competing occupancy levels. Are you following the output from your pricing systems pretty closely or are you making subjective pricing changes?

We're making a lot of subjective pricing changes.

And last part. Europe, Shurgard Europe seems to have operations slowed down a little bit this quarter. A lot of it on the expense front. So if you could just provide a little more commentary on, if the elevated level of expenses are here to stay, given maybe just higher level of taxes going forward, if you could just provide a little more color on that.

Sure, Ki. Europe's P&L on the expense side, I think you hit on the 2 key items. Property taxes, there was a property tax refund last year in Q2. There wasn't a corresponding one this year. So that's why the P tax is up. Advertising was a little more front-end loaded into the year at the front part of the year than last year. I think advertising year-to-date is up. Yes, 13%. So I'd expect some moderation in that growth for the balance of the year. If you unbundle Europe and look at revenue growth by market, there's 1 particular market that has about, I don't know, 15%, 18% of the portfolio. That's Holland. And Holland's revenue in Q2 was down 5.4%. That contrasts with markets like Sweden up 3.8%, France up 2%, the UK was up 1.4% quarter to quarter. Belgium was up 3.5%. So overall we're doing pretty darn good in Europe but we've got, so-to-speak, 1 problem market and that's Holland.

Michael Salinsky with RBC Capital Markets.

Can you just give us an update, is the expectation to get the repayment of the PSD loan in the third quarter or is there a potential to extend that out a little further?

No it's going to get repaid.

Todd Thomas with KeyBank Capital Markets.

Hi, Ron, just a quick follow-up on Europe. Thanks for the breakout on the different countries. But I was just wondering if you're hearing anything since the end of the quarter just in the last couple weeks, whether some markets are rolling over, or if you're seeing a meaningful change in demand over the last month or so.

Sequentially occupancies in Europe moved from 86.4% in June to 86.5% in July. Street rates are about comparable to last year. And so we haven't seen any big degradation in demand here in Europe for the month of July.

Eric Wolfe with Citigroup.

Yes, Michael Bilerman. Ron, as you think about the transaction activity that's transpired in the US over the last year, and you look at your portfolio of over 2,000 assets, I've got to imagine there are some comparables within your portfolio to what's transacted.

I'm sorry, Michael, what's your question?

I'm just saying, within your portfolio, there has to be assets that are in similar quality and location to the transactions that have taken place in the market over the last year. Would you agree with that statement?

We have properties in Cleveland and Cincinnati, if that's what you're asking.

I'm saying, for all the deals that have transpired, like all the deals that you've passed on and that you've told us at the beginning you passed on either due to price or quality or a mixture of both, your portfolio's quite large. I've got to imagine that you have assets in those markets and assets of similar quality to what's transacted.

Do you have a question, Michael?

I'm trying to lead you down somewhere.

Okay.

I'm just saying, if you're not going to buy, and if you think the prices are too high for what's being paid, would you sell any of those assets? Because I've got to imagine you have assets, in some cases, down the street from the assets that sold.

Michael, historically, and as best I could tell prospectively, we're not really sellers of assets because we're trying to continually build upon our platform. And so we're looking for assets that are additive and not only create value in their own right but additive to the platform. So we're generally not sellers of assets. I can't, on a conference call, go through portfolio by portfolio. But I'm relative familiar with a lot of what's transacted. Our team here sees pretty much everything that goes down in the market. And I don't know what to add to what I already said in terms of there's a gap in price between what we think it's worth and what someone else is thinking it's worth. And there's a gap in terms of what we perceive to be quality assets versus what other people perceive to be quality assets. I don't know what else to add to that.

I'm trying to get a perspective of really what that gap is. If there's a certain amount of -- you are in a size and a portfolio size where the portfolio drives significant value to the whole, to each individual piece, because you don't want to take anything out of the portfolio even if you think it's of similar quality to what's transacted. And you don't want to take it out even though you could get an attractive price because it's more valuable to be inside the whole portfolio than outside. Then the gap's got be so large to not take in one of these portfolios into the empire to drive growth even further and enlarge the pipeline, right?

Michael, like I said, I don't know what else to add other than what I already said.

Is there a number that you're willing to at least give --

Michael, listen to the next guy's question. Thank you.

David Harris with Gleacher Company.

Ron, I think I remember correctly, at either the last conference call or the conference call before, you referenced to management issues in the Netherlands. And I think you just threw out some stats which suggests things aren't getting much better. Is that issue resolved now?

Yes, David, we put in a new, what we call a market manager, which is the equivalent of a regional manager here in the US. He's been in place about a year. We've upgraded a number of the district manager positions over the last year, as well. So Holland is on its way to recovery. I think I've got 1 more stat here I could share with you. I touched earlier with someone on the sequential revenue growth. While Holland was down 5.4% quarter over quarter, on a sequential basis it's actually improved 0.1%. So we're cautiously optimistic on Holland. We've got some good people in place and we just need to give them some time. But good assets and good people in place, so I think next year Holland will be a positive story to talk about.

With all the turmoil that's apparently going on in Europe, and obviously the banks are front and center, do you have any sense that action with the banks may provide you with increased opportunities in Europe over the next period in time?

It may, but keep in mind in Europe, the self storage market across Western Europe's only about 1,500 facilities. And I would say the percentage of those that are purpose-built that we would be truly interested in is probably 100 to 200 across Europe. So there may be some opportunities there. I think last year we did buy 2 foreclosed assets, 1 in Holland and 1 in the UK. But I would not see that as nearly as robust a pipeline as we have here in the US.

So you would still say your greater opportunities are in the US compared to --?

With respect to that kind of, so-to-speak, bank or lender foreclosure, yes.

Michael Knott with Green Street Advisors.

Ron, just a follow-up on the fun question from a minute ago. Up until maybe the last couple weeks, maybe your stock had traded as high as maybe a 50% NAV premium, something like that. Do you view that as a mandate to go out and buy? It seems like that would suggest that by not going out and paying market for deals, that maybe you're leaving money on the table. How do you think about that cost of capital advantage that you have versus your decision -- let's say that some of these other deals were overpriced and not appropriate for you?

Michael, I would answer that a couple of ways. One, I think 1 of the reasons we do have the premium in our stock price is because we consider ourselves reasonably disciplined. I don't want to say that we don't make mistakes but we try to be pretty disciplined with respect to buying. And I think that is, in part, reflected in the multiple. Two, in terms of buying stuff, I've said this often, it's easy to buy stuff. You just show up with the biggest check. We could buy as much real estate as we wanted. We just show up with the biggest check and over time I think our premium to NAV would dissipate. Given the market, given the deterioration in the CMBS market, given where the banks are moving with respect to asset dispositions, and the upcoming debt maturities, I'm quite confident we will have plenty of opportunities to deploy capital here in the next year or 2. So from my perspective, I'm not worried about that at all. But we will remain disciplined. And I think that is, in part, why our stock is at what you said, 50% NAV premium.

And then just out of curiosity, how have your results so far this year compared to what you might have expected either 3 months ago or 6 months ago? Has it been stronger than you would have thought or played out as you thought it would?

No, I think this year's played out better than we anticipated. And I think we're really poised, as John touched on, with the rental rate increases going into effect here in July, I think we're poised for a pretty good second half of the year.

Does it seem inevitable that next year might show a deceleration in NOI growth unless rental rates really pick up, pricing power picks up, just because it's been so good this year?

It's a little hard to forecast.

Michael Mueller with JPMorgan.

Just real quick one on G&A, John. The higher run rate you're talking about for 2011, just want to make sure that that's something that we should be thinking of as continuing out beyond 2011.

I can't answer that, Mike. I don't know what will be put in place in terms of incentive plans after 2011. This is a plan that has been in place really for 3 years, and this is the third and final year of this particular plan. And whether additional plans or new plans get put in place going forward, I can't predict that.

Thank you. There are no further questions. I'll now turn the floor back to Mr. Teng for closing remarks.

Appreciate everybody attending our conference this morning. And we'll be talking to you for our third quarter in November. Thank you and bye now.

Thank you for joining today's conference call. You may now disconnect.