Good afternoon. My name is Andrea and I will be your conference operator today. At this time, I would like to welcome everyone to the Public Storage Q4 2014 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Clem Teng. Please go ahead.

Thank you. Good morning, and thank you all for joining us for our fourth 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, February 20, 2015, 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 audio webcast replay of this conference call on our website at www.publicstorage.com. Now I'll turn the call over to Ron.

Thanks, Clem. We had a pretty good quarter Q4 and year in 2014. I want to commend the operations field support, [indiscernible] the Real Estate Groups for doing such a superb job last year and really positioning us well for a solid 2015. And with that, operator, let's open up for questions.

Certainly. [Operator Instructions] Your first question comes from the line of Ross Nussbaum with UBS

Hey, good morning guys. I was just wondering if you could talk a little bit about how rent and discounting trended in Q4 on a year-over-year basis and how that translated into January?

Yeah, this is John. From a discounting standpoint, we increased our discounting during the fourth quarter, which was consistent with what we talked about in the third quarter conference call. We wanted to ramp up the occupancy spread and we were going to discount more as well as spend more on television advertising which we did and we were able to accomplish our goal of increasing our occupancy. In terms of street rates and move-in rates they were both higher in the fourth quarter relative to fourth quarter of last year. On the moving rate which is more important to the street rate, moving were coming in at about 4% higher and we got about 4% more move-ins also. So it was a great quarter. We accomplished what we wanted to accomplish, so we're pretty happy with that.

And have those trends held into January pretty well?

Into January we did a little bit more television and move-in volumes kind of flattened out a little bit, but we were increasing street rates more and so we pretty much broke even on the move-ins, but they were moving in at rates that were higher than the 4% I would say.

Okay and the second question from me on the Shurgard acquisition, the vintage [ph] market is about $250 a foot there which seems pretty rich. Can you just maybe give us a little more color on that since they bought it and if that's market or what was unique about those assets to drive the pricing there?

Well, I'll say the portfolio is about 69%, 70% occupied on a trailing NOI basis the NOI is somewhere between 4% and 5% and you should know, European rental rates on average are about double the U.S.

Okay, thanks I guess.

Your next question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey.

Hi, good morning. Could you, actually your third quarter 10-Q does give in your fourth quarter not yet, but I know in this sector and most real estate sectors that the same-store definition is a little bit different by company. Yours is always a little more conservative because I know you wait three years for assets to move into your pool. But going back to the third quarter Q, it seems like the poppy [ph] pool from 2013 the things that you bought the NOI differential in 3Q 2014 over 3Q 2013 was about $15 million. So it has been pretty substantial, and your 2012 pool was up only $1.4 million. Now just hypothetically, if you, just major definition a little bit more loose and more some of the two other companies that sat there, how would your 6.8% same-store NOI growth, what would that be, would it be close to 8 or more than that or less than that, just curious, because I'm really trying to look at it from an apples-to-apples basis.

Well, Ki, I'll touch on that and then I'll let John add. I don’t know to whether I could call a same-store pool more conservative I would call it more practical because if you, and what we're trying to do is give you the investor as well as our directors and is this the way we run the company as well, what's an apples-to-apples comparison of the business in terms of our store performance by properties and we're not trying to manage to a number or put in properties that clearly are not stabilized to improve our same-store NOI. So the number that we published for you and put the 10-K and the 10-Q are the same kind of numbers that we run the business with. And properties that aren’t stabilized go into a non-stabilized pool and the management teams are measured on those differently than they are in same-store operation. What the numbers are with non-stabilized properties in them is obviously they'd be higher because the properties aren’t stabilized and so their growth rates are higher. What it is I don’t know. John?

No, I have nothing to add to that.

Okay and just a second question, if I look at your New York revenue growth and not just your New York assets, but for most of the public peers and with no stores in New York it doesn’t seem like from a same-store revenue standpoint is really growing that much faster than any other market and even the sick bucket you call other markets is pretty close to that or better. So just curious, is the market like New York really based on the pricing, is it really going to put up that much better growth and you think just self-storage in most other markets or is it like kind of like 2014 anomaly?

Yeah, you know, if you're referring specifically to New York and we talked about that in the third quarter also, where we mentioned that as part of the problem we had was a year-over-year comp because we saw a huge lift from super storm Sandy, which occurred in the fourth quarter of 2012 and that carried over in throughout 2013 where occupancies were very high in New York and we were experiencing above the average rental rate growth. When we got to 2014 then the comps became very difficult and so that's what you're seeing in New York, and if you're looking at Q3 and the when we show you Q4 in our 10-K you'll see a similar thing. But what we are seeing now as the comps now, we're kind of rounding the corner again, New York is beginning to fare better, meaning that the year-over-year growth is going, is starting to rise and get back on track to what I would say normal growth would be for it.

Ki, if you look across the portfolio in Q4 and you'll see this when the K is out, you're going to see an acceleration on the West Coast market. For example, if you take Portland for the year it was up 7.4, but in Q4 was up 8.6, San Diego for the year was up 4.9, but for the fourth quarter up 6.6, Sacramento for the year up 4.7, but Q4 6.6, Los Angeles for the year 5.2, but for the quarter 6.1. So, you've seen a real acceleration in the rate of growth in our West Coast markets and then also in some of the Florida markets, Orlando for the year was 4.4, but in Q4 5.6.

Okay, thank you.

Your next question comes from the line of Jana Galan with Bank of America Merrill Lynch.

Thank you. And on the third quarter call you mentioned looking at other debt financing options, you know, curious why you decided on the preferred financing in December and how you're thinking about capital needs in 2015?

Well, the preferred financing in Q4 we thought the 5.80 or 5.87 was a pretty attractive rate. It wasn’t a big trade, but it was and it was a nice trade below 6% coupon. Regarding the debt financing we're still looking at various options. Do you have anything to add on that John?

No, I think right now we're not under pressure to do anything even though our development pipeline is ramping up as we've noted in the press release, but for the most part the ramp up in development can be funded with our retained cash flow. So the big question mark for us is the acquisition environment and how that plays out for the rest of the year. Currently we're sitting on about $150 million to $180 million of cash. Most of that is from that preferred that we issued in December. But as Ron said, we are looking at potentially issuing that, but that's not something that we feel under pressure to be doing any time soon.

Thank you and then just a quick question on advertising, if you can kind of comment on paid search trends, where you think the pricing will increase in '15 and maybe with the decision to continue doing TV advertising?

Yes we did. As I mentioned we did television in Q4. We did some in January. We continue to evaluate the effectiveness of television advertising. My gut is that we will probably do similar amounts as we did in 2014, but that kind of remains to be seen. Our occupancies are so high right now; it gets more and more difficult to justify spending television advertising dollars. With respect to other advertising, we continue to spend money on either search terms with both Google and Yahoo and I expect that to continue probably at the same paces we've experienced in 2014.

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

Thanks. I wanted to ask you just about the payroll, and I know you've talked earlier in the year about reducing hours and it did decline again in the fourth quarter and of course for the year, just are you seeing any pressure at that segment of the labor market and any thoughts on where pricing might go in 2015?

Well, I think Smedes we've done some things to improve labor productivity in the course of 2014 and I would anticipate probably a little more normalized rate of increase in wages between 1% and 2% in 2015 year-over-year. And I say that not knowing the impact that Wal-Mart's decision to increase their wage rates is going to have in terms of our ability to recruit people. So that was just announced and I don’t know what impact that's going to have, because we usually, we're kind of in that labor market wage rate, so for our people that we hire is relief managers. So, hard to anticipate the impact of that right now.

Okay that's helpful and then on the Shurgard expenses, was that, it looked like they went up a lot in the fourth quarter, is that just transaction oriented and related without sort of stabilized going forward?

Are you talking about the same-store operating expenses that were up quite a bit?

Yes?

Yeah, that was, we had some credits in the fourth quarter of last year that we didn't have in the fourth quarter of this year and then they accelerated some R&M and yeah, the credits were mainly related to property taxes. So they look higher, but I think if you look at the full year they are pretty good expense control for the full year.

Okay, thank you.

Your next question comes from the line of Todd Thomas with Keybanc.

Hi thanks, good morning. Just following up on the Shurgard Europe acquisition, I was wondering Ron, maybe can you frame up what the investment opportunity set for Shurgard Europe looks like, you know, what the pipeline looks like and maybe what the current thinking is towards investments there?

Yeah, Todd, as you probably know 2014 the investments we made combined around $90 million $95 million are the first investments we made in quite some time in Shurgard. We've really been focusing on taking the cash flow and deleveraging the entity with a completion of the private placement in June of last year, refinancing the debt, Shurgard has a fair amount of free cash flow and so they've been ramping up their opportunity set in terms of acquisitions and development. And so, at year end I think we have three or four properties in the pipeline to develop in London and then we did this acquisition in Germany. And I would anticipate that you'll see more activity out of Shurgard in 2015. We generally don't comment on transactions and they've got some stuff in the hopper, so I don’t want to really get into what the details are, but I would anticipate that Shurgard will be active again in 2015.

Okay and then second, on the developments, domestic developments, you're starting to deliver that product in the market now and I was wondering if you could just give us an update, any thoughts on sort of lease up timeframes here. I know historically I believe it would take anywhere from maybe three or four years or so to lease up and stabilize and the development I know your large Bronx facility leased up much quicker than that. I'm just curious what you think the average time is to get these projects delivered over the next 12 months the stabilization might look like?

Yes. Our underwriting of to achieve stabilization has not changed. It's generally somewhere between three and four years depending on the property size and that achievement of stabilization and part of our underwriting is we impute a cost to carry until we do achieve stabilized NOI. So far we've been fortunate. I believe most if not all of our developments are ahead of schedule in terms of pro forma occupancies and cash flow. They are not ahead of schedule in terms of achieving targeted rents and that's by design in terms of we use a different pricing strategy for developments than we do for stabilized properties. The Bronx, the Gerard property is actually about 92% occupied today, which if you would ask me 18 months ago when it opened, if it would be at 92% occupied and 18 months with 4000 units, I would have laughed. So the pricing group, the marketing groups have done a great job in operations in getting that property filled up and that's kind of the way it's working across the platform. So hopefully, we'll be delivering pleasant surprises with respect to our developments, but our underwriting hasn’t changed.

Okay, great. Thank you.

Your next question comes from the line of George Hoglund with Jefferies.

Hi guys, just want to see if I can get the occupancy for the end of January?

Yeah, George, it's about, occupancy is about 93% versus 92%, 93% last year.

Okay. Okay, got you. And then also just wondering if you can comment on the potential FX impacts from a Shurgard portfolio and sort of how you're addressing that for 2015?

With respect to the foreign currency exchange?

Yes?

Well, there's not a lot we can do about the dollar strengthening against the euro, that’s we're really trying to, it is certainly going to have a negative effect on Public Storage, given that I think for all of 2014, I think the average exchange ratio was somewhere about 1.32, where as the euro, I think that exchange rate today is somewhere down about 1.54. So it's about a 13%, 15% decline there. Meaning all things being equal, the income we pick up from Shurgard Europe will go down. Keep in mind however that Shurgard Europe represents about 5% of our FFO or so. So it's not a significant impact on the overall Public Storage earnings potential.

We were fortunate that our intercompany loan, we financed just about a month before the precipitous decline in the euro, because that would have been a real hit.

Okay and then can you also comment on rental rates in Europe given you're still seeing year-over-year declines in the Shurgard portfolio?

You mean what is the outlook for rental rates in Europe?

Yes?

Yeah, you know in Europe we've gotten really aggressive on pricing to drive occupancy and we've been able to do that. I think we're up 500, 600 basis point year-over-year in occupancy, but the net effect of both of those is that we've still been able to deliver positive revenue for available foot growth. So while the rates have gone down, the volume has increased greater, so revenue growth is positive. I would expect that to continue in 2015 because our average for year 2014 was about 86% and Mark and the team over there are targeting to get their portfolio up to 90% to 91%. So I think you'll see probably continued in place rent movement down offset by higher volume and I think we'll see some pretty good top line revenue growth net, net out of Shurgard in 2015.

Okay, thanks, very helpful.

[Operator Instructions] Your next question comes from the line of Michael Mueller with JP Morgan.

You talked about Europe being more active seemingly on the acquisition side. You know, looking at the press release you talked about a new €40 million credit facility. Was that meant to be a one-off facility for the acquisitions or is that something that can be expanded, you know, fund anything that's on your plate going forward?

The €40 million is a revolver Mike, and so it has a term of about three and half years. So yes, they're putting it in place to help fund the acquisition, but to the extent they do pay it down between now and the facility expires they can redraw on the line on that revolver.

Okay, thanks. Okay, that was it, thanks.

Yeah Mike, your question might lead to what is the financing capacity of Shurgard and under their loan the private placement that they did in June, I think they have borrowing capacity of another €100 million, €150 million.

Got it. Okay that was helpful, thanks. Bye.

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

Hey, good afternoon guys. Just given the higher occupancy kind of going into the year this year as well as it sounds like keeping the advertising cost the same, just kind of talk about where you see the greatest opportunities on the releasing front in 2015, whether maybe you plan to push rate a bit more just given the high occupancy, how much concessions are left to reduce, can you just kind of talk about that a little bit?

Mike, I'll start and I'll let John add to this. You know, if you look at Q4 we were able to do what I think are two really incredible things. We were able to move period in occupancy up 0.8% which is a real achievement in the fourth quarter as well as move in-place rents up from 4.6% to 4.9%. So, moving in-place rents as well as the occupancy in Q4 really set us up nicely for January. And if you go back to what we've been talking about, our opportunities on occupancy are really in the fourth quarter and in the first quarter. So what we did on the promotional discounts and the television in Q4 not only helped our positioning, our revenue growth in Q4, which accelerated over Q3, but it's positioned us nicely going into Q1 for higher occupancies and higher in-place rent.

And I would add to that, I think that street rates are going to be higher this year. I think we're seeing competition now pushing street rates more aggressively than they have in the past, probably due to the fact that their occupancies are much higher than they have experienced before, which overall is a good thing for Public Storage because that's been one of our more difficult places to grow revenue. So, as I mentioned, we are seen move-in rates starting to accelerate. Hopefully that will continue. I would also think that the level of discounting will subside, will come down. In Q4 we gave away approximately $20 million of discounts. On an annual basis that's about $80 million. So there's a lot of room to reduce discounting. So we'll work on that also.

The third bucket Mike, just to add to that is, customers greater than a year up-ticked in Q4 as well at 56.7% versus 55.8%. So we ended the year with about 10,000 plus more customers in that age cohort of greater than a year.

Thanks, very helpful, and then just is my follow-up question. You talked about Europe and the acquisition opportunities seen there. Can you talk a little bit about the U.S.? I mean, obviously third quarter, fourth quarter activity seemed to pick up there, are you seeing more product on the market? And then just given the success that you've had in expanding the development pipeline over the last few months, are opportunities becoming more plentiful there?

Well, Q1 is typically a low product opportunity. There's not a lot of product coming into the marketing in Q1. It really starts to pick up in Q2 and Q3. So there's not a lot of stuff in the market right now in terms of acquisitions. As we move through 2014, I would tell you pricing continued to get more and more aggressive. We've moved out into some other markets, where we have a strong presence, but out of some of the more core competitive markets in terms of acquisitions and I would tell you, I mean there's deals getting done well below five cap rates on the acquisition front, which is I'd have to say we somewhat saw this coming a couple years ago which is why we've accelerated the development pipeline. And if you look at our pipeline it's almost double what it was at the end of 2013 and I think you'll see us continue to try to accelerate that form of expansion vis-à-vis acquisitions. We are very happy with our development pipeline, both the growth of it and the quality of the assets.

Thank you.

Your next question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey.

A couple of quick follow ups, what is the percent of customers receiving a discount in the fourth quarter this year versus last year?

Yeah, Ki, I don’t have that in front of me, but I would, my gut reaction is probably somewhere about 76 versus, I don’t know a little less than that last year.

Okay, and I know you guys don’t typically do this, but just given where your occupancy rates are and your commentary regarding street rates that might be improving in 2015, jus t ballpark figure, what do you think your portfolio can handle or push through in terms of street rates in 2015?

I don’t know, I wouldn’t want to guess.

Okay, thank you.

I know it will be wrong.

All right.

Your next question comes from the line of Dave Bragg with Green Street Advisors.

Dave, your line is open.

Yes, thank you, good morning. Can you hear me?

Yeah, Dave, how are you?

Great. Most of my questions have been answered, but I want to follow up on your point made on the low acquisition cap rates driving you incrementally into development, to what degree are you seeing that across the rest of the market, how much new supply do you observe under construction today relative to a year ago?

Well it's simple and so it's more and I'd tell you it's more than people realize. We had a real estate meeting yesterday and I was surprised that the number of markets where we're starting to see development. So there is a fair mount more activity than people realize. And it's logical, like if you are a developer and you've got these public companies buying the CIVO deals nice bridge to what you can build it for. Why not build the product? And it is coming to market. You know and Texas is an easier market to build in and so there is a fair amount of product coming online in Dallas and Houston, the Carolinas. So we're going to see more and more development.

So is it your sense that the construction environment has loosened up considerably for the private developers?

Yes.

Okay, thank you.

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

Hey, Ron this is Ross this time in case you didn’t know it wasn’t me before.

I thought your voice had changed.

Thank you. So if I look at the per square foot cost of your acquisitions that you did last year I think was about $128 a foot. If I look at the cost of your current development pipeline, you're building to about 117 a foot and I know it's not directly apples-to-apples in terms of the geographic mix. But I guess my question is, do you think it is a fair comment to say that you're paying above replacement cost for the acquisitions? That's part A.

Yes.

And if that's true, which sounds like it is, why not and I know you've accelerated development but why not put even more capital into the development bucket and pulled back on acquisitions?

Ross, we are trying, you know it may relative to our size $400 million may not look like a lot, but that's what we reported on is like a pipeline of 29, 30 properties, behind that or another 25 or so properties that we're working on to get into the development pipeline. So there is a lot of properties in that mix. We've ramped up the staff considerably and as we get more and more comfortable in terms of the market, people in place, the experience, I think you will see the development pipeline increase. The great thing about the development pipeline is obviously we're building the replacement cost, we're building brand now product. We're getting into submarkets where there is little competition and where we have little product. So we're really able with the development teams to fill in markets and submarkets that we want to be in and really improve our market share and the quality of our portfolio in the various markets.

And just remind me again the stabilized yield that you guys are building to based on current market rents as well?

Oh, you know it varies by property, but I'd say somewhere between 8 and 10.

And just an extension of that prior questions, if that's true, right and people are paying pretty low cap rates today, why aren't we about to see, for lack of a better word, an explosion in self storage construction in the next 12 to 24 months?

Well, Ross it's still hard to do, but as I just touched on with Dave Bragg, there is more development going on and it is accelerating. If you think back two years ago no one was really talking about development except us and now you go to the self storage conferences and everyone's talking about development and trying to do it. So, I believe you will see an acceleration of development. We are seeing it and it will continue to accelerate. And in some markets like Austin there was a portfolio that traded north of 200 bucks a foot and we're developing in Austin at $80 to $90 a foot. I assume a local guy there can development at $100. I mean that's a big spread I'd say.

Thank you.

Your final question comes from the line of Paula Poskon with D.A. Davidson.

Thank you. I just wanted to follow up a little bit more on the new supply and the amount of development Ron. Are you seeing that any development in what you would consider to be good infill locations or way back to raising the cornfields at the edge of town?

Well, we don’t spend a lifetime in the cornfields, so I can't tell you about that. In terms of…

Metaphorically speaking…

In terms of, yes, yes, now I know. Where we're seeing the more development in markets where you would expect the southeast where it's easier to build and Texas where it's easier to build. So it's logical, oh and yes, Dave Doll is here in New York. New York we started to see development pick up 18 months ago and a lot of stuff is really coming online in New York. So those are the major markets. And we're doing some stuff, but we are doing some stuff in California. We don't see other people doing stuff in California, not a lot in Florida to give you some idea.

That's helpful and are you seeing much redevelopment or repurposing?

Well, we've been doing redevelopment for five or eight years. In terms of what other people are doing I can't comment. I mean that's an ongoing part of our program. So we've been doing it and we will continue to do that.

Okay, thanks very much.

Thank you.

At this time, there are no further questions. I will now turn this conference over to management for closing remarks.

Well, I thank everybody for participating on our call today and we look forward to talking to you next quarter.

Thank you for participating in today's conference call. You may now disconnect your lines and have a wonderful day.