Public Storage (PSA) Q4 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Public Storage fourth quarter 2008, earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Clem Teng, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us for our fourth quarter earnings call. Here with me today are; Ron Havner, CEO and John Reyes, CFO. We will follow the usual format followed by a question-and-answer period. However to allow for equal participation, we request that you ask only one question when your turn comes up and then return to the queue for any follow-up questions. Before we 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 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 reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of today, February 27, 2009 and we assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Reconciliation to GAAP, of the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, SEC reports and audio webcast replay of this conference call on our website at www.publicstorage.com. I’ll turn the call over to John Reyes.

Thank you, Clem. Our funds from operations for the fourth quarter increased to $1.49 per share compared to $1.40 last year. This increase is primarily due to again of $0.21 for repurchasing of preferred stock below our carrying value, partially offset by a year-over-year swing in foreign currency exchange loss of $0.18. After factoring out non-core items, our funds from operations was $1.39 in 2008 compared to a $1.30 last year representing an increase of $0.09 or 7%. This growth is primarily driven by improvements in self-storage items operations. During the fourth quarter we repurchased approximately $112 million of our preferred and equity stock for 75 million, representing an average discount of 33% to par or strict yield of approximately 11%. These repurchases will reduce our annual dividends and allocation of earnings with respect to these securities by approximately $8 million. Notwithstanding these share repurchases and the payment of the special dividend to our common shareholders in December totaling 100 million, we still had approximately $700 million of cash on hand at December. During 2008, our retained operating cash flow was approximately $300 million net of regular and special dividends. Earlier this month, we completed a cash tender offer to acquire up to $400 million of our unsecured debt. We were reasonably successful and acquired approximately $110 million. As a result, our annual interest expense will be reduced by approximately $8.3 million. In Europe we have several developments. First, the arbitration that began in 2006 has finally concluded with a decision that denies our request to terminate the joint ventures early. The decision, however does not affect the continued operations of the joint venture pursuant to the existing agreements. Second, the two joint venture loans mature this year. We are working with the banks to extend the maturities of the loans one to three years. We expect to finalize the extensions within the next 90 days, however given the current credit environment we may not be successful. The loans total EIR250 million and Shurgard Europe as a 28% interest in both joint ventures. Third, our existing loans to Shurgard of approximately EUR390 million has been extended through March, 31 of 2010 and we will continue to receive interest at 7.5% per annum. Fourth, our EUR305 million loan commitment to Shurgard Europe has also been extended through March 31, 2010. This commitment is to provide financing to Shurgard Europe to acquire its partner’s interest in the joint venture and repay the existing loans if third-party financing is not available. The acquisition by Shurgard Europe is subject to Public Storage’s approval. With respect to other capital requirements, our debt maturities here in the US total less than $30 million over the next two years. We do not have a development pipeline in the US, but we are expecting to spend approximately $7 million on redevelopment projects in 2009. In Europe, we are already terminated plans for future development and sights currently under construction are expected to be completed by the end of the third quarter. Estimated remaining costs are approximately $30 million. With that I will turn it over to Ron.

Thank you, John. Our operating performance in the fourth quarter was consistent with what we began to see in October. Same-store movements were basically flat versus a year ago as a result of lower asking rents and reduced media spend. Same-store move outs were higher for the quarter by 5%. We lost 1.1% of occupancy in Q4 and ended 0.8% lower than last year. In January, we experienced further softening and demand. Move-ins were 11% higher, but these new customers are leasing at average rental rafts lower than our existing customers and almost all are getting a promotional discount. January move-outs were 9% higher over the prior year. We ended the month with occupancy of 0.7% lower than last year. We continue to aggressively price, promote and market our product to drive customer volume and restore occupancy. Our advertising expense will be higher in Q1, compared to last year. We are using an advertising mix of TV, radio and national cable compared to Spot TV last year. The lower asking rates and higher media spend customer acquisition costs will probably be higher in the first quarter versus last year. In Europe, the operating environment is worse. Both revenue and NOI growth were negative in the fourth quarter. We have seen fewer move-ins and higher move-outs. The asking rates have been reduced to address weakening customer demand. The downward trend started in the U.K. and has spread across to other European markets. Operating costs continue to be reduced partially offset by increased in marketing spend. Big picture we are not immune to the severe economic downturns in either the U.S. or Europe and we don’t see the operating environment getting better anytime soon. We’ve been taking advantage of the disruption in capital markets by repurchasing our preferred stock and debt. We have a fortress balance sheet and we’ve gotten even stronger in the last 90 days as we de-leveraged by over $200 million. With respect to property acquisitions, we have seen an increase in both the quantity and quality of assets available for sale. Sellers are moving their pricing expectations in the right direction. While cap rates still have not resin to level that clear the market, they are moving up. We think they have a ways to go as today’s cap rate may be lower tomorrow due to declining NOI. Buyers will soon start to factor in negative NOI growth into the underwriting reducing price per foot. Acceleration in acquisition activity for us will be dependent upon the capital markets and owners inability to refinance properties that have near-term maturities. Our target audience is now the banks and other financial institutions, not the owners. Overall, 2009 will be a challenging operating environment. Capital deployment may produce some portfolio growth, but we don’t expect much until the latter half of the year. With that operator, let’s open it up for questions.

(Operator Instructions) Your first question comes from Jordan Sadler with KeyBanc Capital.

Hi there. Just following up Ron, on your commentary on the investment market, could you may be give us a little bit more color on some of the cap rates you are seeing is, you said that they’re not at market clearing levels, but they are up. What so you think you need to see to get excited?

Well Jordan, it depends. It is a kind of property-by-property, market-by-market determination. Where does the property worth its location and as I touched on, we are not really focusing on the traditional equity sellers, people putting properties on the market, we are really zeroing in on the financial institutions and some portfolios where there really isn’t net equity in the property, the property is overleveraged.

We haven’t seen a lot of foreclosures, but as the debt comes due whether its this year or next year, or the next to three years some of the stuff that we are looking at it is pretty clear, it’s under water and so it’s really waiting for the banks to do something.

Just lastly, if all things being equal, if NOI is let’s say flowing 3% to 5% this year, I see that you purchased your preferred this year and obviously tendered the debt. Would you rather buy back more of your preferred at a 9% strip yield or would you buy storage properties at a 9% go on a cap rate?

It depends on the property. I don’t think you would see us buying a lot of preferred at 9%.

Your next question comes from David Toti - Citi.

Good morning. Its Michael Bilerman, David’s with me as well. Ron you talked a little about not being immune to the economic downturn, but clearly the results have held up reasonably well even given a downward movement. Can you just sort of reconcile some of the trending during the quarter and during the beginning of the year related to the deterioration in the economy and how that’s playing out, and how you see it playing over the course of the year?

Sure, David and Michael. If you go back to our third quarter conference call. We touched on the fact that in Q3 we ended the quarter with net positive absorption of about a thousand customers for that quarter and we’ve had preceding in Q2 and Q1, we’ve had net positive absorption, surpassing prior year. So, we were feeling pretty good through Q3 and into August in early September which is why we reduced the media spend in October. What we reported in Q3 is that in October, we’d seen a big acceleration in move-outs, somewhat moving as fast as the deterioration in the stock market at the time and so we wanted to leave investors with a picture that, while Q3 was good and surpassed our expectations we started to see severe erosion or acceleration in move-outs in October. That trend continued in November and December and I think I gave you the number for January as well and as a result, the need to replace those move outs we have to get more aggressive on the rental rate side and the promotional discount side to replace those customers and hold occupancy. So, it really started in October and it’s continued all the way through January.

And how far below is that rate today that you are offering a relative to in place?

It varies by property, by market. It’s.

Let me trying to get a sense of magnitude of -- I mean your comments sound a little more somber relative to at least the results that are being put up, so I’m just trying to piece it together a little bit?

I am sorry my comments are somber relative to what?

Relative to the results you are putting out. I mean the results are pretty good relative to sort of the outlook. So, I’m just trying to put --

Whether there’s a lag effect. So, on a normal run rate basis we are replacing 7% to 8% of our tenants each month. So, as you start to have erosion and the street rates come down you don’t see that all immediately. The whole portfolio doesn’t come down, it’s a lag effect. So, I would expect Q1 revenue to be lower than Q4 because the asking rental rates are lower and promotional discounts are higher. We will continue to be aggressive in that regard as long as necessary, until really the move out slow down and we get some stabilization in the portfolio in terms of occupancy.

Okay, thank you. We will queue up.

Your next question comes from Jay Haberman - Goldman Sachs.

Good morning. Ron your comments about extending the commitment to provide the loan in Euro, I am just curious there is that obligation obviously is exercised in the future does that mean your appetite for either large scale distress transaction is diminished; simply you won’t have the capacity. Can you giver us the sense there of will you be looking at maybe buying back debt and perhaps smaller deals in the future?

Is your question, if the commitment to Europe gets exercised, will that preclude us from doing other things?

Yes

No.

So would you look at for example the Shurgard type transaction in the past and consider using stock or would you…

That’s a bit of an extreme. No, we have significant financial capacity here. We are sitting on $6 million, $700 million of cash, we’ve got a $300 million credit facility and we internally generated about a $100 million a quarter. So, there are less opportunities for us set the moment than there is capital, and that’s not really raising any new capital.

So, you are still looking for the returns that you said that’s likely in the double-digit.

Yes, we are still looking. We have a crew out looking all the time. We’ve looked at over $0.5 billion of mortgages in the last 90 days.

Your next question comes from Michael Knott - Green Street Advisors.

Ron, I am wondering if you are seeing the length of stay shorten at all and does that affect your willingness to use the dollar discount? Are people still staying longer than they think they will?

Michael, this is John. New tenants, look like they are staying about as long as they have in the past, the move-outs that we are seeing again the large-up tick that we are seeing are mostly our longer-term tenants that are moving out at a more rapid pace than they have in the past, but the new people coming in seem to still be sticking around as long as they did before. Now that could change, but based on the data that we are seeing so far they seem to be sticking around relatively the same timeframe.

Can you remind us what that figure is and then what your overall portfolio average is?

New tenant typically stays around 8 months to 10 months. Our overall portfolio has been something like 34 months to 36 months.

Your next question comes from Michael Mueller - JP Morgan. Michael Mueller – JP Morgan: Yes, I think Ron, going back to the January 31 data point you threw out I think you said occupancy was down 70 or 80 basis points. Did you also say that I guess the in place rent per square foot was now negative year-over-year, I think your 12/31 data point was till showing it up at like 70 bases.

No. I didn’t touch on that, Mike. I said that the asking rates for new customers in January were, our street rates were lower than what our in-place rents were during January.

Your next question comes from Jeff Donnelly - Wachovia

A question on how you are thinking about pricing strategy particularly now when you’re competitors arguably weakened by their financial leverage. Are you setting pricing now to maximize your own revenues and profitability or instead is there an opportunity here to maybe pursue to pricing strategy we are focus more and taking market share. May mean you are not maximizing rents.

That’s a good question. Right now we are in mode of trying to hold our occupancies, Jeff. We are trying to price to keep the occupancies similar to last year. We believe obviously demand for self storage has declines quite a bit, so the pie has shrunk. So in order to get a bigger piece of the pie than we were getting before, we have to cut rates as well as offer more promotional discounts. That doesn’t mean that we are not focused on trying to maximize revenues. That kind of almost go hand in hand, but I think in this environment right now, we are really trying to hold our ground on the occupancy, so in long-term we think that benefits us the best.

Do you have a sense that maybe you have been able to cut rates more or you have cut rates more than some of your competitors out there?

I know that it is possible that we have probably done that in some of the markets, but likewise in other markets we may not be below our competitors. It really depends, Jeff it’s really a localized kind of market-by-market type of thing. I know for sure, we’re below on many properties and I know we’re higher on other properties. So, it really depends.

Your next question is from Mark Biffert - Oppenheimer.

Good afternoon. Ron, I was wondering if you could comment on the performance in Europe, in terms of there, you noted they had negative NOI growth. I’m just wondering how you expect that to perform, weather it will accelerate more than in the U.S. next year and what’s the likelihood that they might have to draw on that line that you guys have set aside?

Well, let me try to un-bundle your question here. The operating performance for Europe same-store properties was negative in Q4, as I touched on. The growth rate was negative, that doesn’t mean the operating cash flow was negative. Okay, we’re still producing, I think on the same-store basis $50 million, $60 million of NOI in that portfolio. Given Q4 you would expect some kind of negative NOI growth into 2009, but still substantial positive cash flow. The stand by credit facility between Public Storage and Shurgard Europe is solely for the acquisition of the two joint venture interests, not to fund day-to-day operation. They don’t need that; there is generally plenty of positive cash flow.

Your next question comes from Lou Taylor - Deutsche Bank.

Hi, thanks good morning guys. I guess back to the pricing question for a sec. Ron, you just talked about, I mean how sensitive are your customers in terms of, is it better to hold rates and promote very hard or is it better to do low rates or is it all about the discounted promotions?

Lou, we think that tenants are very sensitive to rates. So, cutting rates we see the up tick in the volume, but I can tell you that the up tick that we are seeing though, it does not offset some of the decreases in rents that we’ve seen. For example if we cut 10%, it doesn’t necessarily translate into a fact that we get maybe a 10% increase in volume. I mean, we are in a very difficult operating environment as Ron touched upon. The trends are negative. We are pulling out all of the stops right now to maintain occupancy to the extent that we can find areas of opportunity to raise pricing, we will do that, but for the moment right now there is not a whole lot of opportunities that we’ve seen to do that. So, we’ve got our rate set very conservative levels right now and we’ve got our discounting wide open. Our real problem right now that we’ll experience is not really the move-in so much as to move-out volume that’s going on within the portfolio and that’s much more difficult for us to control at the moment.

Okay and then can you help us understand the media spend a little bit better. In your Q3 call in November you’d mentioned you were going to ramp it up, but the spend in Q4 didn’t look like it was clearly down. When does that media spend ramp, either going to occur or has occurred already?

I think in Q3 Lou, I touched on the fact that media spend was down in September and was going to be down in October. So, I expected Q4 media spend to be down year-over-year and that was a, quite frankly a tactical error on our part because we made the media decision for October in the first part of September, when we were looking at August numbers when things were much better. So, if we had it to do over, we would not have reduced the media spend in October. For the first quarter, we are obviously through January, through February and the commitments have been made for March. So, we clearly see that the first Q1, 2009 media spend will be up versus first quarter 2008.

Your next question comes from Michael Salinsky - RBC Capital Markets.

Good afternoon. You touched upon advertising, could you touch upon your G&A expectations? What’s the normalized run rate just given how low that was in the fourth quarter and also what are your thoughts for real taxes next year?

First touching on the G&A, the fourth quarter was unusually low for us. We would estimate that our G&A would probably be somewhere in the neighborhood of 3 million to 10 million a quarter, so clearly the fourth quarter was an unusual drop down from that. As for property taxes, currently we are estimating that our property tax increases probably going to be about 3.5% to 4% in 2009.

(Operator Instructions) Your next question comes from Tayo Okusanya - UBS

Yes, good morning just again focusing on the operating expenses. Could you explain why the property taxes where much lower in fourth quarter or historically low in the fourth quarter versus other quarters and do we expect such kind of ramp back up to what we typically see in the first three quarters of the year?

Yes Tayo, our property taxes typically always ramp down in the fourth quarter. If you look at our press release there’s a table on Page 5 which outlines quarter by quarter property taxes along with other items on it, and you will see that in 2007, 2008 you can see that our property taxes always ramp down on a sequential basis versus Q3. We have always told people you really can’t do sequential kind of forecast for us with respect to property taxes because they bounce around. We do tax estimates during the year and when we get to the fourth quarter, it gives us an opportunity now that we have most of the tax bills in to make adjustments accordingly. You could see that the adjustments typically are sequential ramped down during that timeframe. Again, we had just given the last caller. We gave them that the 3.5% to 4% ramp if you were doing a quarter-by-quarter analysis for us, I would just apply that type of inflation across the board based upon what you see. Our 2008 numbers are in the press release table.

Got it, and then just one other quick question. Are there any areas of your operating expenses in ‘09 that you feel that there might still be opportunities to kind of cut backs based on that fairly decent bottom line numbers.

Well, Tayo this is Ron. We are always looking for ways to economize to get more efficient in our business. Obviously in this environment the increases our scrutiny on all expense levels, I think the payroll you will see some efficiency there. I don’t think it will go negative, but there will be a pretty modest increase in 2009. John touched on property taxes, utilities. If you can guess the price of oil that’s your indicator there, we have no idea. Generally I would guess 3 to 5%. R&M will be in part predicated by snow, especially in Q1 and in Q4. So, that is a big factor, normal R&M we have been seen up are maintenance CapEx the last couple year, so I would expect some savings in that area this year. I think that covers the bulk of it. Advertising and media are the swing items and that ties into what John talked about in terms of promotional discounts and pricing. Its kind of the third lever the third ticket that we got wide open to drive customer volumes, so that once more of a function of what are the customer volumes that we need in any period of time.

Your next question comes from Paula Poskon - Robert W. Baird.

Thank you. Just to follow-up on Mike Salinsky’s question on G&A. Can you just review first why the fourth quarter was abnormally low, it was it analogists to year end true-ups or was there something else going on.

It was exactly that. We had a couple of true-pus that we had over accrued for some items during the year and true the --.

Could you also give me a little more color on the accounting change on the ancillary income and operating expenses? This quarter it was a boost to expenses, but I think last quarter as I recall it was a benefit.

That bounces around a lot, Paula. It’s primarily with respect to our tenant reinsurance business, where we book accruals for estimated customer losses for unasserted claims. So depending on what we think those estimates might be, it could cause some lumpiness in the expenses.

And so is that again analogist to having some year end true ups?

Yes, I mean we look at everything every quarter, but in this particular one we had one item that popped out on us and we felt it was best to accrue for it, which resulted in increased expenses during the quarter.

Your next question comes from Jordan Sadler - KeyBanc Capital.

Yes, hi this is Todd Thomas. Can you characterize some of your major markets and talk about what; you’re performing better or worse? And specifically can you quantify any benefit from hurricane Ike in Texas?

Well, I’d say, if we just kind of go around the map, the areas that we are struggling in, the most difficult markets that we are struggling in, still Florida is very difficult for us. The Orlando, Miami, Tampa markets where we have properties, we have some in Jacksonville, very difficult markets and Florida has been difficult for the past at least two years now. The Atlanta, the Carolinas, so all of the Southeast market is very difficult for us. Northeast seems to be holding up very well, Texas very well. Starting to see a little softening kind of in the Midwest, I think the St. Louis up into Chicago areas. The Pacific Northwest which was very strong for us over the past couple of years is also softening quite a bit. California is where we are seeing the bulk of our move out activity, particularly here in Los Angeles and San Francisco, but nonetheless I think they’re still kind of holding up from a revenue standpoint, but we’re starting to see more and more weakness there. In terms of during the quarter, Denver was a strong market. Houston, San Francisco, New York was strong for us, Chicago was strong, but the trends in all of them are showing weakness. So, how much longer they continue to be strong, it remains to be same.

With the Houston performance, one of your peers saw pretty significant growth in Houston, was it surprisingly strong like Katrina. Did Ike do for your Houston portfolio what it did for Florida?

Definitely, Ike helped. Did it help like what we saw in Florida? No. But it was definite benefit, there’s no doubt.

You’ll see it in the K Jordan. I think we’ll break down by market in the K and Houston was I think for the quarter up 4% plus, which is a pretty good growth rate for Houston. So, we definitely benefited from the hurricane.

Any thoughts around some of your peers here, trading at implied cap rates in the mid 11% range?

Jordan, I have no thoughts that I can express publicly.

Your next question comes from Jay Habermann - Goldman Sachs.

Hi, I just want to follow up on the share repurchase, are you guys buying back stock as year-to-date or have you been doing so?

We disclosed in the press release that we have not done any common stock buy backs year-to-date.

Okay, just curious, just given where it’s trading now, would you be willing to step up at this point?

It’s something we look at all the time.

Okay and then also you made a comment I think on redevelopment and development obviously reducing spend. I mean would you anticipate just given the cycle on where we are, you just won’t be allocating much in the way of development over the next couple of year?

Well Jay, I think I touched on it in the last call and I would reiterate that even more is, why would you build when it’s pretty clear that when the market opens or even today on transactions you can buy below replacement cost. So, to me, I don’t know why anyone would be developing today and we followed that thesis with basically terminating development in Europe and we didn’t have much of a program here in the U.S., but we have terminated that and we even slow down on repackaging here in the U.S.

And you said some money for redevelopment, could you repeat that amount?

I think it was $7 million here in the U.S. and then Shurgard Europe’s got about $30 million or so to complete its development build out there.

Your next question comes from Michael Knot - Green Street Advisors.

I’m wondering if you can compare and contrast a little bit, how this downturn and fundamental feels to you, compared to what you went through last time. If you can just comment on that?

Well Michael, I don't want to get on a speech here about the economy and all its nuances, but I don't think most people have seen an economic environment like this where you have massive disruption both in the base level economy and a tremendous disruption in the capital markets, which is permeating absolutely everything. These move outs that we’re experiencing, especially from the longer term tenants. People are coming in that have been with us for years and going “We got laid off. We got to go through the budget. Our investment portfolio is down something and we’re going through the budget and we’ve got to move out of this space and we’ve got to down size this space” and that's pretty unusual. So, I would say this is nothing like, what is typically experienced by us before. Having said that, I will say that I believe, which I consistently believe in, I think self storage will weather this economic environment better than any other product type. We’ve got the levers here of public storage to control or influence demand and volumes into our product space. We don't have tenant improvements. We don't have broker commissions. We’re not going to be giving away two years of free rent to get customers in the door. So, I think this business will fair better than any other kind of real estate in this economic environment.

Okay and then in the downturn last time, I think you guys had two full years of negative same store comps. Arguably, there were some self inflicted wounds last time on some pricing strategies as I recall. I would think you are better positioned today just in terms of operations than last time, but you think the economy and fundamentals are worse. Would you expect some more results as compared to before, maybe a couple of years of negative same store?

Well, I can't predict that, but I can tell you that I think, yes, we are much better positioned today than we were in that period of time. For one, we have a completely different operating system, web champ. We have a pricing group that we didn't have. Our operational group is totally on top of the delinquencies and collections. The field organization is rock solid shape and then our pricing and marketing strategies are better coordinated than they were with the self inflicted as you said, marketing program payment in arrears. So I think we’re in very good shape, feel very good about the pricing marketing and operating team in terms of being prepared for this operating environment.

Your next question comes from Mark Biffert – Oppenheimer.

Ron, just added to what you mentioned about tenants moving out due to affordability concerns, what are you hearing from your small business tenants and their pull outs of space?

Same thing, business contracted, business gone. I mean especially down in Florida you’ve had, someone asked about the hurricanes earlier and that created a tremendous amount of business activity in terms of rebuilding homes, rebuilding offices, repairs and all of that and there were a lot of small to mid size businesses that benefited from that for several years and then the housing boom even accelerated it. So, you've had a lot of those kinds of customers just simply go out of business; they're gone. Now with any economic downturn, there's people getting laid off, fired, who were starting businesses, so that’s a plus, but it’s the same kind of thing that you would expect okay; people going out of business that they have to liquidate and move their stuff out.

Okay and specifically have you heard anything from retailer that might use your space as like an inventory room or something like that in terms of them pulling out?

Well, in a lot of cases we’re a cheap substitute for retail space. I mean it’s better to keep your stuff into mini warehouse property than it is to take additional space in a mall or shopping center. No doubt as retailers contract, as those tenants move out, that does impact us.

Your next question comes from Michael Salinsky - RBC Capital Markets.

Hey John, could you talk about delinquency trends during the quarter and also with regard to renewal increases, do you plan to push renewal increases this year and if so to what magnitude relative to past years?

Michael, on the delinquency, delinquency is about the same as what we’ve been seeing over the past several years. It’s actually come down; the trends have been down there. We also monitor what we call delinquent sales, the sales when people don’t sale pay us and we sell their goods to collect, that’s also relatively the same as it’s been in the prior year. So, we are not seeing really an up tick in that. I think people if they can’t afford it, they’re actually just moving out. As for renewals or increases to existing tenants, we are monitoring that as we go. So, we’ve made no specific plans as to what we are going to do and we will just monitor that as we move forward and see how it goes, and see what types of increases we give out, to what degree we give them out, what markets might get them, some markets may not get them, some might get them. It’s really going to depend and we’re just monitoring that on a day-to-day basis, right now.

Your next question comes from Jordan Sadler - KeyBanc Capital.

I was just trying to reconcile; your commentary seems a little bit more maybe sober, maybe just negative than we’ve heard out of your peers and is it because of the size of your portfolio, any thoughts on that?

Well, Jordan I haven’t listened to the calls of the other self storage operators. Typically our comments tend to be a little more sobering and I think you touched on it realistic. Part of that has to do with, we don’t need capital and we have the systems and kind of the real-time data that I think give you a pretty good picture on what we see happening. What they have seen happening and how they characterize it, I can’t comment on.

Where do you think occupancy could dip in the bottom of this cycle, dip in a portfolio like yours?

Well you’ve got to step back a second and the numbers you are looking at for Q4 and the number I gave you for January, what 87%, 88%, 89%, those are seasonal lows okay. So, besides the economic downturn hitting and really impacting us in Q4 and into January, that’s also the seasonal off peak business period for our type of operation. So, I think a better parameter of how bad is it going to be for self storages, we’ve got to get through August and see kind of how the rental season plays out, how many people move, transferring, all that kind of stuff and the school kids to really see how is the business going to play out during the summer.

Your final question comes from Michael Knot - Green Street Advisors.

Hey guys. The loans to Shurgard Europe are due about a year from now, about $550 million, how should we think about that? Is it likely to be repaid if credit market conditions stay as they are now through a refinancing or should we think about that as likely to be extended or would you consider swapping it back for equity? How should we think about that?

Right now Michael our intent is to get that loan refinanced. We are stopping development activity in Europe and even though NOI growth was negative in Q4 and maybe soft in ‘09, I think the second half of ‘09 and into ’10, we’ll see some robust cash flows out of Shurgard Europe. We think we’re really well positioned to refinance that loan, if there’s any kind of bank market over there in Europe to enable us to do that. But right now we have to get the joint venture loans redone as John Reyes talked about and that’s going to take 90 to 120 days and then kind of the next project in the Q, really starting Q3 this year is the inter company loan between Public Storage and Shurgard.

Okay and then my last question if I may; given the arbitration ruling, can you just characterize the relationship with the joint venture partner and how we should think about how long those ventures continue on for and how you are just thinking about it generally?

Well, I think the first one by its term ends this year.

Michael the first joint venture, either party can trigger an exit strategy, notwithstanding the fact that the arbitration has been completed. First off, the relationship between us is still a very good relationship. The properties, they would not have performed and filled up as quickly as they would have liked them to have, but in any event it is what it is, but JV 1 which is the first 138 properties, either side can trigger and exit at anytime now. JV 2 that exit provisions comes into play I think in May or June of this year.

There are no further questions. Are there any closing remarks?

Yes, I want to thank everybody for attending our conference call this morning and we will talk to you next quarter. Thanks. Bye.

Thank you. This does conclude today’s conference call. You may now disconnect. and are :

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