Public Storage (PSA) Q1 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Nelson and I will be your conference operator today. At this time, I would like to welcome everyone to the Public Storage First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. It is now my pleasure to turn the floor over to your host Vice President, Investor Relations, Clem Teng. Sir, you may begin your conference.

Good morning and thank you for joining us for our first quarter earnings call. Here with me today are Ron Havner, CEO; and John Reyes, 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 get started, I want to remind you that all statements other than statements of historical facts included in this conference call are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control that could cause actual results to differ materially from those projected in these statements. In addition, to the risks and uncertainties of ordinary business operations, these forward-looking statements are subject to among other factors the affect our general and macro economic and real estate conditions, risk related to acquisitions and joint ventures and risks associated with international operations. These and other factors that could adversely affect of our business and future results are described in today's earnings press release as well as in reports filed by Public Storage with the Securities and Exchange Commission including our 2007 annual report on Form 10-K and subsequent report on Form 10-Q and Form 8-K. All forward-looking statements speak only as of today, May 9th, 2008. We undertake no obligation to update or revise any forward-looking statements whether as a result of new information future events or otherwise. During today's call we will also provide certain non-GAAP financial measures. A reconciliation to GAAP of these non-GAAP financial measures is included in our earnings press release. You can find out press release, SEC reports and the audio webcast replay of this conference call on our website at www.publicstorage.com. Before turning it over to John Reyes, I wanted to highlight that Public Storage's business is somewhat seasonal. If you look our historical trend of our same store core properties about 23% of the full year's property net operating income is generated in the first quarter, 25% in the second quarter, 26% in the third quarter, and 26% in the fourth quarter. Now, I will now turn it over to John Reyes.

Thank you, Clem. Net income for the first quarter was $2.64 per common share as compared to a net loss of $0.03 per common share for the same period last year. This significant increase was primarily driven by three items; the first item was the recognition of $342 million gain and $2.02 per common share under disposition of 51% interest in Shurgard Europe. The second item was the recognition of a foreign exchange gain, which exceeded last year's gain by $36.7 million, improving earnings by $0.21 per common share and the third thing was $57.4 million reduction in amortization expense related to intangible assets that were acquired in the Shurgard merger which increased net income by $0.34 per common share. Funds from operation were also higher at $1.39 per share for the quarter versus $1.05 last year representing an increase of 32%. Both of these numbers however included the impact from non-core items that has outlined in our press release. After adjusting for the non-core items, funds from operation were $1.16 per share in 2008, compared with $1.02 in 2007, representing an increase of $0.14 or about14%. This growth is primarily driven by improvements in our net operating income generated from our self-storage operation. For the first quarter of 2008, net operating income for the combined U.S. same stores improved by 2.3%. The European same stores improved by about 15% and our non-stabilized group of facilities grew by about 30.2%. Overall, this growth is driven by higher occupancies, high realized branch for occupied square foot, offset impact by higher expenses associated with snow removal and advertising costs. General and administrative expense for the quarter... for the first quarter 2008 was about $14.9 million. Included in G&A, is incentive compensation expense of $2.5million related to the Shurgard Europe transactions as well as litigation expenses of approximately $1 million. During the second quarter of this year, we expect to incur additional G&A expense of approximately $25 million related to the Shurgard Europe transaction. As a result of the Shurgard Europe transaction, we will begin to account for an investment in Shurgard Europe under the equity method. Accordingly, this is the last quarter that Shurgard's operating results will be consolidated into our financial statements. For balance sheet purposes Shurgard Europe's accounts were no longer consolidated as of March 31. Our balance sheet now reflects our investment in Shurgard Europe as well in our intercompany debt of €391 million, or $619 million. The debt bears interest at a fixed rate of 7.5% and has a term of one year through March 31, 2009, can be extended one additional year through March 31 of 2010. Shurgard Europe intends to repay all of this debt through the issuance of third party debt as soon as market conditions permit, but no later than March 31, 2010. We are committed to provide up to €305 million of additional loans to Shurgard under these same terms. These loans could be used to repay existing third party loans owned by the two joint ventures and the possible acquisition of the remaining joint venture interest. The arbitration proceeding on these joint ventures are scheduled to begin this June. We continue to maintain a solid financial position. At the end of the first quarter, we have cash of about $725 billion, debt of only $680 million, and we retained approximately $98 million of operating cash flow during the quarter. With that, I will now to turn over to Ron.

Thank you, John. Our combined domestic same store REVPAF or revenue available per available foot grew by 3% in the quarter due to positive absorption and rate growth. We continue to aggressively price, promote, and market our product in an effort to restore occupancies to their historical trend line levels. For the quarter, our pricing and promotional programs generated just over 2,800 more customers or 1.4% more in our combined same store pool than last year. With move outs decreasing by 1% or 1,700 customers, we had about 44% higher absorption or 4,500 more net customers than last year. Occupancy increased to 89.4% at March 31st, from 87.9% at December 31st. We have eliminated the year-over-year occupancy GAAP as of March 31st, which was a negative 0.2% at December 31st. As of April 30th, we were 0.2% ahead. In addition, in place rents were also 3.4% higher than last year. We are taking market share and continue to have upside for occupancy growth. Our most challenging markets continue to be in Florida, but we had negative top-line growth. Florida makes up about 10% of our combined same store domestic portfolio and lower rates and occupancies in this market reduced to combine same store revenue growth by about 70 basis points. We expect year-over-year comparisons will get easier as Florida begins to recover. We are starting to see some positive traction, especially in Miami. Partially offsetting Florida were the Minneapolis, Detroit, Chicago, and Houston markets, which all had solid revenue growth. In addition, our two largest markets, Los Angeles and San Francisco also had good growth in the first quarter. For the first quarter, we expanded our media coverage to an average of 28 markets versus 23 last year. We expect our media spend will be higher in the second quarter than last year due to an increase in frequency. Our European same stores continue to perform exceptionally well. For the quarter, Europe achieved top line growth of 6%. Europe also benefited from tight expense control that helps drive NOI higher by 15% and the growth profit margin of 62%. Europe's in place rents this quarter end were 5.8% higher. The spread between asking and in place rents is still quite large positioning our European same stores for continued solid growth. We are pleased to be teaming up once again with a premier institutional investors, the New York common retirement fund to grow our European operations. We expect to accelerate our development program, but it will be a little while before you see the impact on our operating results. Shurgard Europe currently has 13 properties under development or in its pipeline. We have significant interest in acquiring portfolios, mortgages or properties under construction. We have significant buying power and financial flexibility to structure a wide variety of transactions. With that operator, let's open it up for questions. Question And Answer

Thank you. [Operator Instructions]. Our first question is coming from Michael Bilerman of Citigroup.

Hi, Ron; and Craig Melcher is on the phone with me as well. You talked about having much more customer base, your new customers exceeding your move out. Does that mean even though occupancy was flat that effectively the new customers are taking a lower amount of space?

No Mike, I... what I'm trying to highlight is that on a quarter-over-quarter basis, we picked up customers, 2,800 more move in than last year and we had fewer move out. So, the rate of growth in our portfolio year-over-year was better in Q1 2008 than it was in Q1 2007. The reason the occupancy is the same as we started in the whole at December 31st, so we had brought ourselves back up to square one or even with last year and that momentum is carried into April, where we are now 0.2% ahead of last year. So, we have gone from behind to even up 0.2%.

And there was any discernable trend then on the amount of space that each tenant is taking?

No, the average customer size; no, it's about the same.

Okay. I'll re-queue up for next question. Thank you.

Thank you.

Thank you. Our next question is coming from Jordan Sadler from KeyBanc Capital Management.

Good morning out there. First question just comes from the... your last comments, Ron, regarding your appetite, I think, you said to acquire portfolios maybe mortgages as well as other potential investments. Were you referring to within the European joint venture or on balance sheet, and then maybe if you could just elaborate on where you're seeing the opportunities to invest the cash flow raised from the sale of the interest in Shurgard Europe?

Yes. Well, there is two things you bring up Jordan. The first is as John Reyes touched on, we do have a commitment to Shurgard Europe for somewhere between $450 million and $500 million to fund the possible takeout of the joint venture interest and the related debt on those joint ventures. The arbitration herein expect for the end of June, so what comes of that when that capital maybe called upon, I can't tell you. But there is an obligation on our part to loan to Shurgard Europe that money to take out, possibly take out those the joint venture interests. Here in the U.S., we are focused on trying to acquire mortgages on properties, properties under development, portfolios of properties or single properties. And so, it's kind of an advertisement to those operators listening. We have flexibility in structuring a wide variety of transactions that may suite their needs or we have plenty of cash to consummate at all cash transactions.

What have you seen in terms of flow off late, has it been down from last year significantly or more recently?

Well, I think what you are seeing across the whole commercial real estate platform, where there is office industrial or self-storage and you've heard some of the other guys talk about it. This is the pretty wide bid ask spread. People are... the sellers are still looking at sort to speak last year's newspaper ads, looking at the prices and not really dialing into what's going on today. On the loan front, it's a little challenging for lenders to realize kind of the economics of the terms, the loans that they made and reflected that in the pricing. So, overall there is a kind of a gap between the bid and ask. I'd also say that the market environment is such that really a lot of operators are not under stressed, it's the lenders that are having the stress, not really the operators and giving the lenders to move or do something that I'd say is equally or more challenging than operators.

Thank you.

Thank you. Our next question is coming from Christine McElroy of Banc of America.

Hi guys. Can you comment on supply growth in your market? Is that something that you track internally or do you use an external data source? And are there regions, where you're concerned about a level of supply demand line?

Wedon't... we look at it in a sub marketplace somewhere Christie, but it's not something we track in aggregate. I think you've heard John Reyes talk about in terms of pricing when a competitor comes into our marketplace we have to deal with them. And sometimes they affect our pricing; sometimes they don't affect our effect pricing. But overall, we are not seeing a lot of new construction in the marketplaces. Some sub markets there's always people I am speaking of Honolulu, there is a couple of properties that have come out of the ground and there is a couple more that are going to come on the ground, and in smaller market like that that market is going to be over supplied in the near term. But on a holistic basis, no we haven't seen whole a lot of new construction.

Thank you.

Thank you. Our next question is coming from David Toti of Lehman Brothers.

Just a quick question around your focus on occupancy and obviously that's a long-term focus would you guys. How do you... can you just provide some color on how you weigh the mix of promotions, advertising spending, your tolerance for margin compression and your push for rent growth in that drive for occupancy gains?

Hi David, this is John. Occupancy is very important, so that it's not the only metric that we live and die by, because after all, I often tell you, you can't take occupancy to the bank. But at the end of the day occupancy is kind of the key driver that kind of in our minds drives revenues, drives our pricing, drives our promotions, and we try to target between 90% and 92% occupancy. When we get in that range, we feel like we've got some pricing power, and we've got some power to start reducing promotional discounts as well as start... we start taking the pressure off of television advertising. And when we start getting there, obviously our revenues start growing better, faster. And that's just a strategy that we've taken in the past; it seems to have worked for us. And I think we are going to continue to along that strategy.

Great, thank you.

Thank you. Our next question is coming from Lou Taylor of Deutsche Bank.

John or Ron, can you just talk about the incentive comp a little bit in terms of where did it go. Is it to your European team, to U.S. team to a bunch of different folks; could you just explain that or expand on that a little bit?

In terms of who got paid?

Roughly, yes.

Well, it's all the people that participated in kind of value creation that has happened over... in Shurgard Europe in releasing that value creation with the monetization of the 51% interest Shurgard direct to the institutional investors.

All right, so it's primarily to the European team?

No, mostly to the American team.

Mostly the American team.

But the European team also is participating.

Okay. And then... all right, I'll get in queue then.

Okay.

Thank you. Our next question is coming from Jay Habermann of Goldman Sachs.

Back to the question that Jordan asked; can you sort of rank order your preferences in terms of investments between sort of portfolios, mortgages as well as sort of one off properties? I mean clearly, it was $700 million of cash in the balance sheet, you'll the incurring some dilution there?

We're open to all of them. There is no preference obviously deploying capital one or two properties at a time depending on where you're buying them is incrementally smaller dollars going out the doors than if you buy a large portfolio for $400 million to $500 million. But we are open to all three or even whether it's a mortgage. At the end of day, what we care about is what is the underlying real estate, what's it going to worth, what's its long-term growth rate. How we get there, and structurally I think we have a lot of flexibility in getting there; but at the end of the day, we are open to all kinds of structures of portfolios.

Thank you. Our next question is coming from Michael Knott of Green Street Advisors.

Hi guys, just going back to the incentive compensation; can you just talk about why you structured this pay in a deal specific format. Have you ever done that before? It seems like relatively large number. It seems like half roughly of your annual overhead cost, so if you can also just address sort of how it was determined? Thanks.

Sure, you're probably wondering what the trustees were thinking. Is that right?

Just curious to learn more about it.

Sure. Well, Michael if you look at what's happened with the Shurgard Europe since we acquired it; I have a few kind of metrics here. In 2005, realized rents per foot were about $22 a foot, today they are $29.54. Average occupancy was 78%, today it's 87.3%. And the gross profit margin was 44%, today it's about 62%. In addition, with the intercompany loan, we've generated about $100 million of currency gains, whether we realize all of that, I am not sure. So, we are able to monetize that value creation and partially monetize it in this transaction with New York common and somewhat in the market environment that some would consider somewhat challenging, generating about $600 million of proceeds. We also position Europe ... Shurgard Europe is standalone entity with capitals now grow in accelerated development platform. Now for FFO purposes the gain, I don't think anyone recognizes. The currency gains some people recognize, some people don't and how people treat the incentive payment in the G&A. I don't know whether they'll put that into their FFO forecast or not. But if we pay to an investment banker a 3% or 4% for the money, it would have kind of gotten buried in the gain on the sales Shurgard Europe. To the shareholders, the cash is the same. It's just as a book keeping varies in terms of what buckets and what line items kind of accounts for. Does that help?

That helps; thanks.

Okay.

Thank you. Our next question is coming from Chris Pike of Merrill Lynch.

Good morning. Ron, I guess last part of your question helps me answer this one. But with respect to the joint venture, I know you guys are open for business, but does the joint venture with New York Common. Does that in anyway prohibit you or preclude from spinning off any portion of Shurgard Europe in a public setting as originally planned if conditions present themselves in the future? Or is this the final resting place so of that entity?

Hi, Chris. No, the kind of the business plan with respect to Shurgard Europe between us and New York Common is to take Shurgard Europe public at sometime when capital market conditions are more favorable. So, I mean at the end of the day that's really the long-term plan for Shurgard Europe. And that's really what New York Common and Public Storage bought into. It's been... it's very similar to what we did with PS business parks. When they came into that entity 11 years ago, they contributed assets, not cash and then we raised some institutional money and they took the entity public within four to five months after the transactions was consummated. So, we've been down that past with them before and that's still the long-term game plan for Shurgard Europe.

Okay and I guess I just on a related question; maybe John, I know you guys took that deal cost hit when the deal originally got scuttled. Does... I guess the joint venture sale, is that helped... is there any offset to that dead deal costs or would you have to wait until you actually spin it up... spin it out and actually utilize bankers for that service again or maybe you can reverse that?

Chris, yes. I think the dead... so-called dead deal costs of about $9 million or so that stock, that's not going to basically come back and be beneficial, it's not going to be reversed. When and if we take this entity public, we are going to have to incur much of those same fees all over again.

Okay. Thanks a lot guys.

Thank you. [Operator Instructions]. Our next question is coming from Michael Mueller of JPMorgan.

Yes, hi. Going to acquisitions and capital deployment, can you tell us anything significant in terms of sizes either being closed on in the second quarter under contract or just what the near-term pipeline looks like?

Mike, I think whatever we've got is described in the press release. So, there is... I mean there are some development stuff. We've got couple acquisitions properties that are under contract to close and then we've got the stuff over in Europe. So, whatever we are contractually committed to or have under way is way out in the press release. We are looking at stuff all the time in the hundreds of millions of dollars, but we are not at a place, where we're contractually committed.

Okay. Okay, thank you.

Thank you. Our next question is coming from Michael Salinsky of RBC Capital Management.

Good afternoon guys. John, could you talk about where your street rates are at on the year-over-year basis, and also what level of increases you are pushing in on renewals currently on a year-over-year basis?

Michael, our street rates obviously varies by market, by property, and they are all over the place. I would say in general across the platform, our street rates are either flat to slightly down compared to this time last year. They were probably that... they were down probably about I would to say 5% to 6% in March and probably about flat during January-February timeframe. So, we kind of lowered them down during March, gained some positive traction on moving volume and then we spent steadily increasing the rates. But we are still probably flat to slightly down. In terms of pushing rental rates to existing customers, we are pushing them at the same types of levels that we have been pushing them in the prior years. So, customers who are getting, I want to say on average something like a 5%ish. But remember, those are just the customers that we are actually sending rental rates increased letters to, which is not the entire portfolio at any one point in time.

Okay. Thanks guys.

Thank you. Our next question is a follow up coming from Michael Bilerman of Citi.

Your bad debt expense trending in the first quarter and if you could compare that how it's been in the last few quarters?

Well, we write off receivables, I believe after 60 days. And our delinquencies are close to record lows, and they've been that way for the last year. I mean we've taken a 10th or two-tenths of a point off of our delinquency. But the... I mean they are very good. I mean when we get the acquisitions, we are usually able to... there is a metric we use delinquent rent. And usually when we take over an acquisition we are looking at somewhere between 15% and 20% and we tend to run 3%, 3.2%. In terms of another item that we measure, it's called vacate uncollected, which are tenants that vacate and in the space is not put back online, that's also at a record low. So, in terms of giving the cash and collecting and managing the receivables, the operations groups is doing a just fantastic job.

Yes.

Thank you. Our next question is also a follow up coming from Jordan Sadler of KeyBanc Capital Management.

Can we stick with expense theme for a second? Same store expenses this quarter on the combined U.S. same store portfolios was up 4.4%, which represented quite a bit of a take up from last quarter levels. And I am specifically curios about the media spending line items and the RNM line item. If you could just maybe elaborate and tell us what's going on there. What happened in that quarter and if that's something that's going to stay at a little bit of an elevated level going forward?

Well, Jordan, if you recall... you're talking about sequential quarters, right, Q4 to Q1?

Yes, I was actually looking year-over-year with 4.4% with the 4.4% growth, but last year... and last quarters...

If I just go year-over-year property tax is up 4%. They usually run between 3% and 5% and that's usually what we start the accrual rate at the beginning of the year. I think John Reyes touched on that last quarter. So, that's a normalized run rate. Property payroll was up 1.2. So, we continue to realize some of the benefits from the wage rate roll down in the Shurgard, managers year-over-year that should probably stabilize at somewhere between two or so. Media advertising was up year-over-year and as I touched on my comments that was an increase in frequency ... both frequency and number of markets and I believe I touched on in Q4 that we were resuming media advertising in Q1 to drive the occupancies, customer volumes, which we were successful at doing. If you recall in Q4, we had dialed down media year-over-year Q4 '07 was substantially below Q4 '06. We did not do any media in December and very little in November. So, we basically only advertise a month, month and a half in Q4, where as we run three months in Q1. Our utilities, repairs, and maintenance; most of that increased million, million and half bucks of snow. We had light snow last year; we had heavy snow this year. Property insurance is down, other cost of management, part of that is a rebate that we got on discontinuing satellite service last year for about $500,000 to $600,000. And the other swing is moving a timing item for our management conference that we have each quarter at about $800,000, $900,000 that was expensed in the first quarter of this year and was expensed in the second quarter of last year. So that will swing a little bit year-over-year, or quarter-to-quarter.

But... so, overall if you were to sum everything up on a combined basis, there sounds there are some ups and some downs. The growth rate that we saw in the first quarter seems like something that could be relatively sustainable?

Yes. I mean I am not going to make a prediction whether it's 4%. We are going to have uptick in media in Q2 this year versus Q2 last year. And how that plays... what that total size is I don't know yet, because we haven't done our media by for June. I don't know what happens in occupancies and rates through the summer rental fees and you may see a flat to negative comp on media going into Q3, and Q4 is too far off for me to think about.

All right, thank you; it's helpful.

Okay.

Thank you. Our next question is a follow up coming from Christine McElroy of Banc of America.

Not to beat it to death, but just following up on the expense questions. How soon after you begin TV adverting? I think you mentioned five additional markets. Do you start to see the impact on demand trends in that market?

It's fairly quick, Christine. The... because we track the phone volume, the web volume; and so when we run an ad, usually within 24 to 48 hours, we see an uptick. The thing about the media spend, that's a little hard for people to understand is, when we spend money on media and then we do it combined with dollar promotional specials, you kind to have two negatives in that period. You have the media dollars, which we expense, and then you have basically zero revenue, because the customer doesn't pay anything the first month rent, and we don't recognize any revenue from that customer. However, if the customer on average stays eight or nine months and pays you 150, 160 bucks, you could see the economics kind of make sense in terms of what we are doing. But from a book keeping standpoint, it's all expense in period one and the revenue comes in later period.

That's helpful, thank you.

Thank you. Our next question is also a follow up coming from David Toti of Lehman Brothers.

My questions have been answered. Thank you.

Thank you. And our next question is coming from Lou Taylor with Deutsche Bank.

Yes. Also on the expense theme; what were the additional merger related cost that you... that are coming up?

Merger related costs?

The $4 million of G&A related to the Shurgard merger?

That was in Q1 of last year.

Q1 of last year. Okay.

Yes.

Sorry, I misread that, okay. Then for my question then; in terms of just... you've been clarifying the balance sheet, is the cash from the Shurgard closing on the balance sheet at March 31, or is it more of a April 1 impact?

Lou, it's on the balance sheet at March 31.

Okay, super. Thank you.

Thank you. Our next question is a follow up from Jay Habermann of Goldman Sachs.

Hi. Ron, can you just talk about the potential returns on the larger portfolio deals? I assume you are looking at similar increases in occupancy and obviously synergy gains, but could you just compare today's transactions, say versus the Shurgard transaction?

Okay. Well, let me make sure I understand, Jay. Do you want me to try to compare the acquisition of say a portfolio of 20 or 30 properties with what we thought, our return our investment with Shurgard was?

Even larger transactions, means looking at even larger deals.

Even larger than Shurgard or larger than 20 or 30?

Within 20 or 30.

Okay. Well, my guess would be in today's environment there is a... probably a portfolio discount versus a portfolio premium, because capital, especially leverage capital is more challenging for guys to rise. For us, we don't really look it that way, we look at the individual pieces and take a sum of other parts and say what is the portfolio work, whether we are buying one property or 100 properties. Obviously, the benefits that one would give with the hundred properties in terms of yellow pages, cost of management and probably some occupancy and revenue pick up would be... be the same as if you have bought one property multiplied by 100 times, but it's far more efficient. But really way we look at this stuff is we are buying one property multiplied by however many we are doing. So, we don't really ascribe in our own minds kind of a portfolio discount. It's just a better opportunity to deploy a larger sum of capital. How other people look at that in the marketplace, my guess would be that they would take discounts for portfolios, because they are harder to finance. Does that address your question?

Yes, I guess I was just trying to get a sense of are you seeing the same type of return possibilities that you saw with Shurgard in today's environment meaning in terms of is it really going to come from occupancy upside or they're really more cost synergies?

Most ...there is very few transactions, if any, that we'll probably replicate Shurgard. Because there was so many synergies across so many areas and that was a very effective, $5 billion... efficient $5 billion, $5.5 billion transactions. So, there is no one... there's nothing else to combine there for that size. In terms of what typically happens on acquisitions, yes, we usually get cost synergies and top line growth. And I think there is a table in this press release, but it's certainly spelled out more clearly in the 10-Q, where we track the year-over-year occupancies, the year-over-year rates and the year-over-year expenses of those properties not in the same store pool. And it's by year of acquisition or by year of development, and you can kind of see that play out. So, on a micro scale, the same things happening that's happened in Shurgard, occupancy growth, rate growth expense efficiency is just harder to see the individual impact and that's why we have that broken out in the 10-Q.

Thanks.

Thank you. Our next question is coming from Michael Knott of Green Street Advisors.

Hi, guys. Can you just I guess step back and paint us a picture of sort of how your operations look and feel different since John Graul joined and then also look forward and help us understand how the new folks will fair in his role and what their outlook is?

John Graul is a great addition to the team. He helped standardize and put consistency in structure across our platform here in the U.S. Probably, I would have to say his greatest contribution is John's a great executive in terms of hiring people, quality people, and getting them in the right spots, and setting up process for people development. Those process, those attributes, those things are firmly in place, and the two guys stepping up here John Sambuco and David Young have had 4.5, 5 years of mentoring under John Graul. They've participated in a lot of the stuff that he has done, and they've learned a lot from him. So, I don't expect a big change in terms of things going forward and things that John Graul brought to the company are pretty firmly embedded in terms of our culture.

Thanks.

Thank you. Our next question is a follow up coming from Chris Pike of Merrill Lynch.

Hello again. I guess back to John with respect to the balance sheet, I just wanted to be square with respect to your comment, so Shurgard Europe is going to peer through equity earnings in the P&L next quarter. But you do have the note receivable. And investment in real estate, I think a portion of that is PSP book, correct?

That's correct.

Okay, so can you breakout the two, because I would assume the other is your equity ownership in...

Yes, basically the changes between the year-end number of about $300 million.

Fine; okay, great.

That's basically... our investment in Shurgard Europe. That represents our 49% remaining investment in Shurgard Europe.

Okay, so that is booked. Because some folks like us, we apply market value to that PSB to get an asset value.

Chris, in the 10-Q, there will be a lot more detail for you to be able to chew on and hopefully get to what you are trying to get to.

Okay, great. Thanks a lot.

Thank you. Our next question is a follow up from Jordan Sadler of KeyBanc Capital Management.

The housekeeping one; Ron, I think you said, in April, I think you were referring to occupancy; April 30th, you were 0.2% ahead?

Of last year.

Of last year?

Yes.

That's right number. Can you give me the absolute number?

No, I don't have that handy, but...

Or I'll take the absolute number from last year, if you have it.

You know what Jordan, you can call back and get back.

Thanks guys.

Thanks you. Our next question is a follow-up from Lou Taylor of Deutsche Bank Securities.

Thanks. In terms of your same-store pool both for the quarter and Shurgard changed by roughly 80 properties, I guess 63 and 1. Did that changed your geographic distribution much?

It does obviously change it somewhat. The number is though... the number is the in terms of revenue growth and NOI growth is about the same. So, there is no much difference between the two, but the geographic location does change a little bit.

Okay. And what are those changes?

I don't recall at the top of my head. I am sorry, we have more Carolina influence in the Shurgard same-store pool than we had in the past.

All right. And is at the same 80 properties in both pools or is it just 80 additions in both?

They are in 80 separate additions in both.

Separate 80 additions in both. Okay, thank you.

Thank you. Our final question is coming from Michael Bilerman of Citi.

Come back to the incentive payment. How was the $27.5 million set as a value? How broad were the payments and is there anything else in terms of any other payments tied to maybe this vehicle going public, to buy other joint ventures, or any other performance, whether it be Shurgard, domestic and Shurgard Europe?

The 27, I presume, you are talking about the $25 million plus the $2.5 million.

Yes.

The $2.5 million related specifically to the Shurgard Europe folks, and it had to do with some equity based compensation. They have some units that are now against stock options within Shurgard Europe that due to the transaction accelerated the investing of those units and between a half as essentially the differential between the value that they will get and the exercised price. With respect to the $25 million, the whole $25 million is mostly as mostly herein the U.S. it's all related specifically to the transaction with your comment. I had nothing to do with the Shurgard merger or any other transaction that was either contemplated i.e. the IPO that did not happen back in June of last year or the... our cap at JV transactions that we are hoping to accomplish.

And how did that $25 million... I mean how did you come up with $25 million?

Well, the board of trustees came up with it. And all of them participated in the discussion. So, how they arrived at that, I can't tell you.

Well, how much does that represent of the value that your allocated value for Shurgard Europe versus the implied value on the joint venture in New York Common, what's that spread and how much value went to PSA shareholders?

Well, Michael, I touched on earlier and gave you some metrics on what has happened on the Shurgard same-stores since the time we acquired them. And so, you can kind of replay the conference call and go back to that as well as the $100 million of currency gain and raising capital in this environment. So, I think Michael has not asked that question earlier, so I just refer you to kind of go back through that.

Yes, I understand the benefits that on the operations, I think you know one of the reasons you understood this transactions as you saw that it was an under performing asset that's bringing you'd see some benefits on the operational side. I'm just trying to grasp if you allocated $1.5 billion value to Shurgard Europe and the implied values $2 billion in the sale, and you got 50% of that, so called $250 million growth value. I'm just trying to figure out putting that $25 million in context of the real value creation that's coming from buying it at one price and liquidating 50% of that of at another?

Why don't you look at the NOI generator form Shurgard Europe in 2005 and the NOI generated in Shurgard Europe today, and you can come up with your own estimates of the change in value as well as the implied valuations ascribed to Shurgard Europe by New York Common?

Okay, thank you.

Thank you. We have a question coming from David Zonervek of Broadpoint [ph].

I had a questionon the property taxes. Just looking on a per square foot basis, same-store... in the last year on a per quarter first full year was $1.09 per square foot, but the... and if you sort of annualize the first quarter's numbers that you have accrued for property taxes, it's $1.23 a square foot. So, it sort of applies the new... at the 400 facilities you are adding in, in terms of property type per square foot or a lot higher? Could you explain the discrepancy?

Well, part of it, David, is the Public Storage legacy portfolio has a significant number of California properties, very old California properties, who... as you know in California, we have top 13 [ph]. So there's not a lot of increase here in California with respect to those properties. So that portfolio has been kept relatively in check, whereas the Shurgard portfolio when we did the merger, we had to step up values here in California for those properties and so we are paying at a much higher valuation or assessed values on a relative square foot basis, which is now when you blend the two together it's pulling the portfolio on a combined basis up. I don't know if that helps explain it, but really primarily California properties.

Thanks.

Thank you. Our next question is coming from Lou Taylor of Deutsche Bank.

Just following back on Michael Bilerman's line of questioning; is it fair to assume that... it sounds like that this incentive comp is not tied to anything related to the Europe JV assets that current litigation. If something were to occur there in terms of litigation gets solved, you acquire those assets. I mean it sound like the trustees' logic would be that another incentive comp fee would occur in that transaction. Is that fair to assume?

I don't know. There's nothing that I know about right now related to that.

No, sure, but I mean, but it sounds like if you've get an incentive comp for doing the value accretion, which you've done in this particular portion of the European portfolio that there would be another one coming for the rest of it, I mean isn't that kind of fair?

Well, the arbitration is really settling up really the unwinding of the join ventures and what the arbitrators decide and all that, I have no idea; that's still unfolding. So, I don't know what the trustees will do. There is no plan tied to the arbitration that I know about.

No, I mean it's not the arbitration per se, but I mean if the trustees are going to start awarding incentive comp for kind of major transactions, I think that we should probably build in, some increase in this comp or some future compensation for that whether, it's a year or two down the road. I mean is it that... I mean isn't that fair to assume?

You can do whatever you want. I am just trying to say there's nothing that I know about on the table related to that. As I said, the trustees can do what they choose to do.

Okay, thank you.

Thank you.

Our next question is coming from Jeff Donnelly of Wachovia.

Yes. Just a follow-up; Ron, I guess on the incentive payment, sort of two parts, I guess. Why did the Board opt to pay an incentive on this transaction? I don't believe you guys have a history of specialized payments and I think what people are wondering is how much of that $25 million actually went to the people, who are on the call today for Public Storage?

Well, you're going to read about who got what in next year's proxy. And I think with the question that Michael... I'll refer you back my answer with Michael Knott in terms of what happened in Shurgard Europe over the last couple of years and the information, the 10-Q and the 10-K in terms of what's happened over there and the complexity and the value created associated with Shurgard Europe.

Okay, Is it fair to say that maybe the majority, though, of that $25 million went to senior management at Public Storage?

Yes, and you can read the details in next year's proxy.

Thanks.

Thank you.

Our next question is coming from Michael Knott of Green Street Advisors.

Hi, guys. Just one more question on this; why did the Board consider the foreign currency gains as part of all the value creation in Shurgard Europe? It seems like that was more arguably as much luck as skill that was actually created through the self-storage operations and the financings and such?

Michael, the Board considered all variety of things in evaluating the incentive comps. And so that is just one element.

Thank you.

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

Okay, thanks everybody for attending our first quarter conference call. And we look forward to talking to you next quarter; and have a good day. Thank you.

Thank you. This does conclude today's Public Storage first quarter 2008 earnings conference call. You may now disconnect and have a wonderful day.