Public Storage (PSA) 2012 Q2 法說會逐字稿

Good afternoon. My name is Maria, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Public Storage second quarter 2012 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. Thank you.

I would now like to turn the call over to Mr. Clem Teng to begin. Please go ahead, sir.

Good morning, and thank you for joining us for our second quarter earnings call. Here with me today are Ron Havner and John Reyes.

All statements other than statements of historical facts included in this conference call are forward-looking statements 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 and in our reports filed with the SEC. All forward-looking statements speak only as of today, August 3, 2012, 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 the call over to John Reyes.

Thank you, Clem.

Our second quarter core FFO per share was $1.62, compared to $1.43 last year, a 13% increase. Five items contributed to this growth. First, our same-store net operating income increased by 8.3%, adding $0.12 per share. Our non-same store properties added $0.03.

Last year's acquisition of affiliated partnership interests added $0.02. Lower financing costs added $0.04. Ancillary operations, primarily our tenant reinsurance business, added $0.01. Partially offsetting this was $0.03 per share from lower interest income.

We completed several capital transactions in the second quarter. We issued $288 million of preferred securities with a rate of 5.625% and called for redemption $416 million with an average rate of 6.7%. Assuming no further issuances, preferred dividends are expected to be about $8 million lower in the third quarter of 2012 as compared to last year. With that, I will now turn it over to Ron.

Thank you, John. The second quarter benefited from solid demand, resulting in record high occupancies and higher realized rents.

In Q2, we reduced media spend by 44% or about $1.5 million, as well as promotional discounts. Net customer acquisition costs declined as customer move-in volumes remained constant despite lower media and promotional discounts. At the end of July 2012, occupancy, asking rents, and in-place rents were all higher than the same period last year.

In Q2, Denver and Charlotte markets led the country with revenue growth of 8.7%, followed by Miami and Detroit at 6.6%. Los Angeles, our largest market, grew 4.4%, and San Francisco, our second-largest market, grew -- revenues increased by 6.2%. Given the trends in our occupancies and rates, we expect our Q3 media spend will be comparable to last year.

In Europe, same-store NOI improved by 2%, despite a challenging operating environment. We recently completed the purchase of five facilities with about 377,000 square feet for $52 million. We're currently under contract to acquire two more facilities for about $30 million.

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

(Operator Instructions)

Your first question comes from the line of Christine McElroy of UBS.

Hi, guys. Just in regards to Europe, your occupancy has slipped a little bit overall, even from Q1, but you've still been able to see some decent growth in realized rents. I'm wondering if you could talk a little bit about your overall revenue management strategy there and what makes sense, sort of given the different environment you're operating in versus the US.

Christie, last year we had some really aggressive promotional discounts in a couple of markets, which we did not do this year, because the -- kind of didn't get the benefit in terms of rate and promotional discounts versus move-in volume. So we've moderated those this year. So you've seen some degradation in occupancy and an uptick in the in-place rents and the rental revenue lowered promotional discounts. That varies by market, and the operating results vary greatly by market, where on a revenue growth basis, France was down 1.6% on a same-store basis, whereas the UK was up 3.5% and Belgium was up almost 7%. So it varies by market. So what you're seeing is a blend. But the big picture is, better pricing reduced discounts this year with some impact on move-in volume.

Just following up on the UK, can you talk about how the VAT tax issue could potentially impact the platform overall? I wasn't sure sort of what the breakout looks like in terms of residential versus commercial. And how does it impact sort of your perspective about investing additional capital there?

Well, that's a lot of questions there. Basically I don't think -- I think the VAT tax is going to be negative. It's effectively a 20% price increase. And we've been told that, in fact, it's going in place October 1, so my guess is it will be negative. How much, we don't know. I think we have 25%, 30% business customers, so obviously, they won't pay it, but the retail customer will be paying it.

Okay. Thank you.

Your next question comes from the line of Eric Wolfe with Citi.

It's actually Michael Bilerman. Ron, I'm just curious, with occupancy getting back towards what is historical peak-ish levels and more of your revenue growth coming from rate, how much further do you think you can push rate increases on your customers? And sort of where are you sort of sending out renewal notices today?

Michael, this is John. We are still pushing rental rate increases to our existing tenants. We're sending out as many renewals this year as we did last year. The rate increases are higher this year than last year. Can we continue to do that into next year? We're going to continue to try to do that. We see no reason why we couldn't do that. Part of our revenue growth was also driven by reductions and discounts, as Ron mentioned. So we picked up a good chunk of growth in the second quarter by reducing discounts to those new incoming tenants. So, we're continuing to drive our revenues, mostly with increases to existing tenants, but also with reduced discounts to new incoming tenants.

And what would those discounts have been in terms of the spread relative to last year in terms of impacting revenues?

Well, probably the spread is probably close to 100 bps of growth in the second quarter.

And you would expect this 5% growth to continue in the back half of the year, assuming occupancy is flat to up a little bit?

Michael, we're not going to answer that.

We don't give guidance, Michael, so --

Trying to get a sense of how much you can push your customers, that's all. Thank you.

Thank you, Michael.

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

Hi. Thanks. I'm with Jordan Sadler as well. Just a quick follow-up on that. I was just wondering if you could break out in terms of the top line growth what the impact was from reduced concessions versus higher market rents.

Again, the growth that we experienced is primarily driven by increases to existing tenants. That's primarily the biggest driver. And as I mentioned to Michael, the previous caller, that we drove growth about 100 basis points by reduced discounts. Market rents, those that are charged -- that are theoretically charged to new move-ins, although our market rents are higher, the rents that are actually taken by the move-ins were about flat year-over-year. And our move-in volume, as Ron mentioned, was about flat year-over-year. So we really didn't drive revenue on the new move-in customer, with the exception of reduced discounts to them. But on the pure volume and rate to those customers, it was basically a push on a year-to-year basis.

Okay. Thanks.

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

Hey, guys. Hey, Ron or John, can you just -- sort of following on your last comment, John, can you just give us a sense for the year-over-year change and sort of the relationship between street rents and your in-place rents?

Street rents, Mike, are all over the place, depending obviously, you know this, what part of the country we're in. They were probably up anywhere from 3% to 5%, but with that said, we discount occasionally off of those when we -- if a customer comes in via the web, there's a discount. So again, the actual rate that's taken was about flat. In terms of the in-place rent, the in-place rent is still -- it fluctuates, depending on the time of the year, because we drive street rents, which can then go higher than in-place rents. And throughout the quarter, that was probably up about 5% on a year-over-year basis. Let me see if I can answer your question a different way, because it might be what you're really looking for. People we're moving in at roughly $114 per unit on rent, but they were moving out at about $120 during the quarter. So net-net, on just the pure rate alone, we were in a rent roll-down, which we were last year also. But I think that's really the question that you're trying to fish for.

Yes, thanks. That's helpful. And then, can you just maybe talk a little bit about your Internet marketing strategy and kind of your view of the degree that that is a competitive advantage for you over -- certainly over your private competitors and maybe to some extent even how you feel about that versus your public competitors?

Well, Michael, I'll start. Big picture on the Internet, last time I looked at it, we get 75%, 80% of our inquiries organically, which means we don't have to pay for them. And that's certainly attributable to the brand name. When we talk to the experts at the search firms and Google, that's a pretty unparalleled level of organic search, not just in our industry, but across industries in the US. So I would say our brand has tremendous benefit to us on the web and obviously a lower cost to drive Internet traffic vis-a-vis our competitors and the local operators.

As time has gone on, we continue to drive more traffic through the web, so more of our volume is coming through there. And you can see that in our Internet spend, which is probably up $1 million, $1.5 million year-over-year, but our cost per click is continuing to go down. So we are getting more volume, but the cost of each net customer is less than it was a year ago. I don't know if that addresses everything you were trying to ask.

Yes, that's fascinating color. Thanks. And if I can just follow-on real quick, just related to that. What percentage of your customers overall come from the Internet as opposed to walk-in or over the phone, I guess?

Michael, roughly 60% of our tenants appear to have come to us from the Internet. The reason why I say appear, because some of them make reservations on our website, and some of them call our call center using a telephone number that they got from our website. If you combine those two together -- and they didn't make a reservation on the website, but they've made a reservation in our call center -- so we kind of combine those two. And so roughly about 60% of our tenants are coming to us -- or at least those that make reservations and moving in -- are coming to us via the web and our website.

Thanks a lot.

You're welcome.

Your next question comes from the line of Gaurav Mehta of Cantor Fitzgerald.

Gentlemen, your capital transactions, do you have more preferreds that is redeemable this year?

We do. We have -- in addition to the stuff that we've already called, there is -- we've got about five other series of preferreds that are callable. Two of them -- the two highest coupon ones, that probably the next ones if we so desire to call are our Series X and our Series F. Both of those have a coupon of about 645, and combined, they're about close to $400 million.

Okay. And second, switching gears, I think on the call you mentioned that rents and occupancy are trending higher as of July. I was wondering if you provided any numbers on that?

I didn't, but I'll give them to you. So at the end of July, occupancy was 93.1 versus 92.9 last year.

Okay. Thank you.

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

Hi. I was wondering, if you're looking at the domestic portfolio, expense growth has been muted for a long time this quarter. I think it was actually down year-over-year. Can you talk about when do you see -- like how far away are you from something that feels like it's more normalized rate of expense growth?

Mike, this is Ron. The big swing variable in our expenses year-over-year has really been in the media advertising, the television, which I touched on, as we've been able to reduce that by year-over-year on the same-store pool, $2.5 million and aggregate's probably closer to 3.5, but $2.5 in the same-store pool, while maintaining move-in volume and reducing promotional discounts. Q3 media spend, as I touched on, will probably be comparable to last year. So if I just look at Q2, we had a 43% reduction in media spend. We're not going to have that going into Q3.

The other items, the big swing items, utilities, it's been a milder second quarter weather-wise, but it's been pretty hot in July and August across parts of the country, so my guess is utilities will swing the other way. Property level cost, I assume pretty well flat, maybe up a little bit. Property taxes are the big item. It's our largest expense. We're running about 4%. John?

Still, our estimates are about a 4% increase throughout the full year, Michael.

Okay.

Does that help you?

Yes, yep, okay. Thank you.

Your next question comes from the line of Neil Malkin of RBC Capital.

Thank you and good morning, gentlemen. I have two questions, one more general and one more, I guess, specific operationally. Given that some of your other peers have been doing a significant amount of acquisitions relative to their size, what is preventing you from sort of doing the same? You have a pretty cheap cost of equity. Are you looking at things, portfolio sales maybe, something like in California or Texas or the East Coast to sort of drive your growth going forward, just given where you're trading at, your NAV versus your stock price? Or do you want to keep the same, I guess, portfolio size? What are your thoughts about that?

Well, a couple things, Neil. First of all, I don't think we have any peers. But second of all, I think if you run through the model, run through one of your models, if we did $1 billion of acquisitions, used preferred, call it 5.25%, and we bought $1 billion at, say, 6%. A 6% yield is about 100 basis points wide of the large New York portfolio done last year. We add 50 to 75 bps on yield on $1 billion. So, you're talking $5 million or $6 million.

So, I don't think if you run it through your model, you see that that has a huge impact on our earnings growth. The second part is, there's not $1 billion of A properties in A markets to be had. If you look at the acquisitions in the first half of the year, all the public companies combined, I think, have bought about $200 million, excluding stuff that they bought from joint ventures. So let's assume everyone's buying A properties in A markets. That's only $200 million in the first half of the year, let's assume it's a $400 million, $500 million run rate. There's just not a lot of A product in A markets coming to the marketplace right now.

Okay, thank you. My follow-up is, given your occupancy levels right now, probably around the highest they've been in several years, are you -- have you figured out the strategy of what sort of a tenant -- not a business tenant, obviously, sort of retail, I guess, you could call tenant -- to get to stay the longest before they'll move out? So I guess, in other words, because your occupancy's so high, are you just going to look to push renewals very aggressively and see what sticks? Or are you sort of getting at it from a more technologically savvy perspective or target those tenants who can take those large renewals consistently?

So Neil, one of the things that we monitor is the number of customers in the portfolio greater than a year. And that has been rising over the last couple of years. At the end of Q2, June 30, it was about 54.9%, which is up from 54.7% in 2011 and up from 54% in 2010. So that number has been moving up year-over-year. It varies slightly by quarter due to seasonality, but quarter-over-quarter, it's continued to increase. So we pay attention to that, because that's really the base of customers that we have that we target to send rental rate increases. So it's important that that group continue to grow.

The second aspect of it is, rental rate increases have a direct impact on people's length of stay, which is intuitively logical. If you send them 3% rental rate increase, you're going to get a different move-out rate than if you send them a 30% rental rate increase. So we monitor that very carefully in terms of the level of rental rate increases we send out versus our change in move-out volume. It's not directed so much to whether they're a business customer or a consumer. It's more how we're monitoring the rental rate increases and its impact on our move-out volume. Do you have, John, anything to add?

Neil, it depends on the market and the property. We look at each of those factors, the demography, the move-out rates, what happens to them after we do give increases, how much -- how quickly do they move out, because there is an uptick in move-out activity. And we weigh that versus how much of an increase we're going to give particular customers within certain markets and certain properties. So it's all kind of thrown into the mix, because at the end of the day, we're trying to optimize our revenues without totally having people pack up and move.

Okay. All right. Thank you, gentlemen.

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

Hi. Thanks, guys. Can you give some more details on the acquisitions you made in the quarter and then the one you made in July, just looking at occupancy and pricing.

What we bought during the quarter, give me a second. Going back in my mind, what we bought in the quarter versus recently. The stuff we bought in the first half of the year, most of it was bank foreclosures. The occupancies were fairly low. We've got another one of those to close on, I think in August. And then about four, five of the properties were more stabilized, private transactions negotiated with private owners, so they had a higher stabilized occupancy, not 90%, but closer to 75%, 80%. Is that what you were looking for?

Yes, that's what I was kind of going for. You probably would err on the side of more lease-up opportunities?

Yes. This is kind of bad, but the great thing about the short sales, the bank foreclosure stuff is they're generally under-managed, under-occupied, and acquired at pretty good discounts to replacement cost. So if I could buy a billion of those, that would be fantastic. But they're hard to come by. They're challenging to negotiate through the sellers, through the banks, but they're great long-term value-add to the portfolio.

Are they low in the sense that they were newly built over the last couple years, or not necessarily?

No, the stuff we bought in July had been open four, five years, was managed by a public company, but it just wasn't run well. And the other problem with that is banks are generally not going to put capital, needed capital into the properties, so anyone managing it is going to have a challenge of achieving good occupancies, because they can't make the investment to space mix changes, water leaks, roof, those kinds of things. So when we buy them, we like that. We can easily refit them, rebrand them, and then get them to our 92%, 93% occupancy.

Is there a CapEx per square foot number that you kind of earmark for new acquisitions like that?

You know, it varies, deal by deal. It really does. So we're looking at all-in cost, the rebranding cost, one of the acquisitions we did, we had to buy a parcel of land behind it so we could create another entranceway into the property. But that was all factored in when we underwrote the transaction.

Okay. Thanks, guys.

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

Good morning out there. A question about -- (technical difficulty).

Paula?

I'm sorry. Paula's line has disconnected. We'll move on to our next question from David Harris of Imperial Capital.

Good morning. I hope I don't suffer the same fate. It was obviously anticipated to be a tough question. Couple questions for you, Ron, on Europe. Over the last couple of quarters, you referred to some management challenges and operational challenges in the Netherlands. Are you beyond that now?

David, I think we're getting there. If I look at Holland, while year-over-year occupancy's down 3.6%, we're at 75% at the end of the quarter versus 77.7% last year. But the revenue growth is still declining about 2%, but that rate of growth has slowed. We've got a good team in there, and so I think we'll see Holland, maybe not this year but next year, turn positive for us, and we'll push the occupancies in that market.

So I'm feeling pretty good about Holland. Our new CEO over there is doing a great job. He's out in field operations a lot, so I think he's getting traction. The market that's kind of started hurting us is our largest market, France, where we're backwards on occupancy there as well, 2.8%. Revenue growth is down 1.6%. But that market has gotten pretty soft over the last six months.

Do you think that's associated with political change and a slowdown in the economy, or is it more specific to your business?

I think it's in general in France. I don't know whether it was in June or July, there's a proposal to increase wages for everyone over there by I think 2% or 3%.

Yes.

And so and our workers in France are unionized, so they decided to go on strike for a day to emphasize that they wanted that 2% or 3% wage increase. So we have various things like that challenging us in France.

This is a bigger picture question. Is it premature to think about good opportunities arising over the next couple of years out of the financial dislocation, economic disruption that we're seeing on the Continent?

I think you have to step back, David. In Europe there's 1,200, 1,400 facilities. Probably half of them are not even product we would want, maybe even three-quarters of them. Europe is really more of a development opportunity. The really quality portfolios take [big yellow]. It's not over-leveraged. It's well-run. Smart group of guys running that portfolio. There's some regional operators over there that also have some quality assets. But to our knowledge, they're not overleverages, so they're not in financial distress. So there's not a lot of distressed product of quality, as best we can tell, available in Europe.

Okay. So the external dimension to your growth story over time is really going to be more development than acquisitions there.

In Europe, yes. But recall last -- I think we went through this last quarter. We're really focused on taking our cash flow in Europe and deleveraging so we can hopefully get to investment grade late 2013, early 2014. So, that's really our principal focus in terms of capital deployment in Europe is deleveraging.

Okay. Great. Thank you.

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

Sorry about that. We just moved offices and are still having technical difficulties. So my question was, are you seeing any elevation in employee turnover, either in the field or at the corporate headquarters, as the job market slowly improves? And how do you think about staying ahead of that in terms of retention strategies?

You know, Paula, we have an excellent HR team headed up by Candy. And she works closely with Shawn, our COO, and John Sambuco, and they look at turnover all the time. They look at recruiting across markets. In fact, we have a weekly meeting on new staffing, both at the field level and the district manager level. So it's something we monitor very closely.

We've been fortunate on the property manager, relief manager side, that our turnover is flat to down versus last year. And on the DM side, we're hiring fewer DMs this year because we've had a little less turnover. But on the district manager side, we're challenged in markets that you would expect, like Washington, DC, Baltimore, which has incredibly low unemployment. So those markets are harder to fill, but overall, we're doing fine on the turnover side. We haven't noticed a big uptick. Corporate-wide, turnover is not really -- pretty low.

Thanks very much. That's all I have.

(Operator Instructions)

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

Yes, hi. Just a follow-up on your comments regarding domestic acquisitions. I guess I'm just wondering all else being equal, given the free cash flow that you're throwing off, $65 million, $75 million a quarter, would you rather pay down preferreds at 6% or buy an asset at a 6% yield, even if it is what you consider to be a class B facility?

We would rather grow our asset base than continue to deleverage.

Okay. Well, I guess it seems like right now with some of the refinancing of the preferreds that you are deleveraging the balance sheet a little bit. Do you have plans to continue in that direction, or do you think that you'll bring leverage up a bit?

Todd, it really just depends on the opportunity. As I touched on before, we're -- there's not a lot out there, but what is out there, we're trying to garner. We have system-wide or Company-wide about $5 billion to $6 billion of preferred capacity, so we have plenty of firepower. It's really just predicated on the right opportunities.

Hey, Ron, it's Jordan. I guess trying to figure out -- are you cap rate sensitive? I know you talk a lot about and have for years about discount relative to replacement cost or replacement cost being something of a governor. And it's a little -- conceptually, I understand why, but given sort of the lease-up time frames, I guess it's a little bit harder to gauge what lease-up cost is, given how long it can take to lease up. So I'm just -- we're just curious, are you cap rate sensitive in that given you have all this cash flow and the willingness and ability to lever up, if prices were to move in the direction of -- initial cap rates on stabilized assets head significantly lower than 6%, are you cap rate -- are you sensitive to that?

Jordan, I'm not sure I understand your question. But I'll try to --

Is there a threshold you're not looking --

We are more price per pound sensitive than cap rate sensitive. One of the properties we're acquiring in Q3, it's in New Jersey, it's $40 a foot, and I think on day one, it has a negative yield. It's 30%, 40% occupied. It's a bank foreclosure. We'll have $40 a foot, it's half of replacement cost. We love the deal. Will it take us a year or two to fill up? Maybe. But at $40 a foot, we couldn't even build it for half that, so we love that deal. The stuff we bought in the first quarter, which is also bank foreclosure, blended cost of about $80 a foot. Our guess is that stuff on average would take about $120 a foot. I think we paid $45 million for that. And the going in income was about less than $1 million, if I recall. So again, not going in cap rate sensitive. We're looking at -- it's the blended $80 a foot and it's $120 to build. Does that help you?

It is. I guess I'm just curious, is it -- how do you value lease-up? Let's say something's 30% leased. You can buy it at a 10% discount to replacement cost. But it's probably going to take -- it's in a market where it's going to take another three years to lease it up. What's the value? Do you just do --

We impute a cost to carry to get it to a stabilized yield in our own internal analysis. We've tried to discount back that -- to your point, a property that has three years to lease-up is not -- has a different value than one that is already stabilized. So we try to impute -- we don't try, we do impute our cost of capital, our carrying cost associated with that. And we're also acquiring stabilized properties. We bought the in the first -- the second quarter, we bought two properties here in Southern California that, one was, I think 70%, the other is 80% occupied, more mature properties in there. We paid $130, $135 a foot, much closer to replacement cost, but they're good properties in good locations.

That's helpful. Thank you.

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

The 5% rent growth that you recorded this quarter, and when we look back in history, like in the last cycle, '05, '06, the peak of the last cycle for you guys, you had a couple quarters where you had 5%, maybe one quarter at 6%. And then it sort of trailed off in '07 and then beyond that, of course. But how do you think about this stellar rent growth and sort of the sustainability of that or even the prospects for continued acceleration, just given that obviously the macro environment is much softer than in the '05 and '06 recovery? Just how do you sort of reconcile that, and does that make you more cautious on rent growth going forward compared to that time?

Well, '05, '06 is quite a while back. There were a couple things that impacted our numbers in that period of time. Probably the most impactful, Michael, was hurricanes. I think there were two or three down in Florida. And that filled up most of our Florida properties for a year or two, with no promotional discounts. You could call it self-storage nirvana. And that was in our '05, '06 numbers. We haven't had hurricanes down there for a while or they haven't impacted the storage facilities, so that's certainly a wild card in our operating results going forward. The other thing that impacted us in '07, '08 was the Shurgard merger. If you recall, they were about 8% to 10% lower occupancy than us, so that impacted our property occupancies pretty significantly during that period, in part due to cannibalization.

Going forward, I don't know if you asked me if we would be reporting 5% same-store revenue growth this quarter versus the exceptional performance we had last year, I would have said that wouldn't happen. So I've been surprised by the robustness of the business, as well as the fact that we're issuing [five handle] preferred. I did not expect that last year. So, my forecasting abilities aren't great. What I do know is we are in a great business, and it continues to perform well, and we've seen good demand across the country. Being able to drive -- hold move-in volume while reducing promotional discounts and media spend to me says a lot about the robustness of the business.

$1 billion of hypothetical acquisition scenario that you outlined earlier and sort of the challenges of getting there and the sort of minimal yield spread that you see, do you feel like that -- the trouble finding that level of acquisition volume is a function of a slow investment sales market? Or are you sort of approaching some kind of limit in terms of the properties that you're actually interested in acquiring from sort of a preference standpoint?

I'd say it's more a lack of supply in terms of quality product versus change in preference or anything like that. It's really a supply issue.

Any thoughts on what might unleash some more supply for you guys to acquire more?

I really don't, Michael. I'm sorry. I don't.

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

Hi. Good morning, guys. Ron, one of your competitors, who I guess isn't one of your peers, stated that Phoenix was actually one of their weaker markets. And I'm wondering if you've seen anything in your portfolio, whether it's Phoenix or anything around the Miami area, which are two markets where the housing markets have recovered, where you've actually seen any weakness in your stores.

Hold on a sec, Ross. I'll get you --

Obviously, the theory being that if you've got a rapidly improving housing market in those areas, people are taking their stuff out of storage because they've got more space.

Yes, you know, let me give you the same-store growth. Tampa was up 2.7% in the quarter, which is at the low end of our top 20. Orlando was up 4%. Miami was up 6.6%, one of our best performing markets in the quarter. So we've got Tampa, Orlando down at the lower growth end and Miami just on fire there at 6.6%. Phoenix is not in our top 20, but its same-store revenue growth for the quarter was 1.2%. Vegas was pretty well flat but is moving up as well, and I expect that to be positive, probably in the back half of the year and next year. I'm not sure if that addresses your --

I think we're grabbing at straws here, right, to figure out what's going on in this crazy world. Completely unrelated question, which is, you don't have a massive acquisition plate, at least it doesn't look like it. Development is almost non-existent. Where are you spending most of your time personally? You've got great people running the assets. Where do you spend your days?

Well, I have a new COO to train here in the US, I have a new CEO in Europe, and I like to participate in acquisition opportunities. And then two weeks ago, I got Shawn, our new COO, and we spent a week in the car going through the Carolinas and Atlanta. So it's always good to get out in the field. So, that's what I tend to do.

Appreciate it. Final question from me. Why shouldn't we be seeing a notable pick-up in development activity if conditions are as robust as they are?

Well, I think there is development activity. Why isn't it more robust? Probably due to financing. Certainly, the more well-capitalized regional operators have access to capital. And we've heard, we've seen a number of them talk about development, some of them are starting. But the majority of the product which comes in the onesies and twosies, everything we know of, those guys are still having a big challenge in terms of getting financing to undertake development.

If you think about development as a whole, and we may have covered this last time, over the last 10, 12 years, there's probably been 15,000 facilities developed. I don't know the exact number. But the public companies contributed a very, very small fraction of that. Most of it came from local people building one to five facilities and those are the people that are pretty well capital constrained at this time.

Does that change going forward? It really depends on the banking industry. Does it make sense to build in some markets? Well, certainly in New York, if you could sell at $400, $500 a foot. Can you build less than $400, $500 a foot? Yes. Is New York a market where it makes sense to build? I think so. Does that answer your question? I guess so.

Your final question comes from the line of Eric Wolfe with Citi.

Yes, Michael Bilerman again. John, given that Ron's forecasting abilities, in his words, are not that great, where are you sending out your renewal -- what's the percentage increase in the renewals going forward that you're sending out now?

Well, I could tell you what we've done, Michael, which we're pretty much done now for the bulk of the year. We sent out very little increases in the third and fourth quarter. Actually, I shouldn't say the third quarter. I mean in September and through the back end of the year. And the increases on average were about a little over 9%, compared to last year of about 8%.

And then there's some retrading where that nets down?

Oh, yes. Because, again, you'll lose some of that, so people won't stick around. So you will get an incremental pop in or increase in had move-in the volumes on a net-net basis. We probably will expect to kind of really get out of the 9%, get maybe about a 6% out of it.

Great. And then Ron, can you just remind us, how much does the UK represent of Europe in terms of NOI?

Michael, on a same-store basis, it's about 15%.

Okay. And then just thinking about -- you talked a little about the acquisitions that some of the public peers have done in terms of buying from their joint venture partners. They've also bought from their management platforms. We talked a little bit about this on the last call. Have you given more thought of potentially making that a bigger part of the business, A, one, just given the fact that your operating margins and how you run your business and about putting a managed asset into there is so valuable? Second, in order to create a larger ongoing pipeline of deals potentially for you to acquire?

Yes, Michael, I would say if we were to really get going, and as I think I touched on last quarter, I think we do 35, 40 properties, third-party managed. So we've been in that business for -- since inception, because when we first started Public Storage, when we started out, we sold our properties and we managed them. So we've been in the third-party business for 40 years. We would undertake third-party, overall as a business, if it made sense. As I've said before, filling up so much property so I can turn around and buy it at a higher price, just I have trouble with the economics of that. But in terms of doing the third-party business and making it a business and profitable, we're continuing to evaluate that.

And then just my last question, just your sense of what's happened over the last year and just in terms of demand in the business and obviously being able to produce the rate increases that you have and continue to push occupancy even modestly over high levels, how much do you think the public landlords have just been in a market share game versus incremental new demand of the storage business?

Well, I'm sure we've taken some market share, but -- and I know that's -- some other people talk about that as the big thing, but just step back and look at the fact that the public companies in aggregate have less than 10% share of the industry. Now, certainly in certain markets, and for us, you take Seattle and Minneapolis where we're by far the dominant operators. The public companies really aren't there, and we have very good share. We've seen good demand in those markets. So I would say it's not really -- we're not taking away from the smaller operators. That is, aggregate demand for the product is good, is robust. So I don't think there's a material impact of this kind of market share thing between large and small operators, because the large operators just have such a small fraction of the total industry.

Yes, but there's an element, even if the public guys own 10%, the percent that you own of the higher quality assets is much, much higher, where people could be trading up to more secure, better, well located, climatized assets.

They could. But generally, the better assets in the better markets are already pretty well occupied.

Okay. Thank you.

If you go from 87% to 92% on 1,000-unit property, you're talking 50, 60 spaces. It's not going to really change the dynamics of that particular sub-market.

Right. Okay. Thank you.

There are no further questions at this time. I'll turn the floor back over to Clem Teng for any closing remarks.

I want to thank everybody for attending our conference this afternoon. And we look forward to talking to you next quarter. Thank you. Bye.

This concludes today's Public Storage second quarter 2012 earnings conference call. You may now disconnect.