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Public Storage (NYSE:PSA)

Q3 2008 Earnings Call

November 7, 2008 1:00 pm ET

Executives

Clemente Teng - Vice President, Investor Relations

John Reyes - Senior Vice President and Chief Financial Officer

Ronald L. Havner, Jr. - Vice Chairman, Chief Executive Officer and President

Analysts

Mark Biffert - Oppenheimer

Jonathan Habermann - Goldman Sachs

Louis Taylor - Deutsche Bank Securities

Michael Bilerman - Citigroup

Jordan Sadler - KeyBanc Capital Markets

Christine McElroy - Banc of America Securities

Michael Mueller - J.P. Morgan

Mike Salinsky - RBC Capital Markets

Michael Knott - Green Street Advisors

Lindsey Yao - Robert W. Baird

[Tia Oksana] - UBS

Chris Pike - Merrill Lynch

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Public Storage third quarter earnings release conference call and webcast. (Operator Instructions)

I would now like to turn the conference over to your host, Clem Teng, Director of Investor Relations. Sir, please go ahead.

Clemente Teng

Good morning and thank you for joining us for our third 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 effect of general and local economic and real estate conditions, risks related to acquisitions and joint ventures, and risks associated with international operations. These 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 by Public Storage with the Securities and Exchange Commission, including our 2007 annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K.

All forward-looking statements speak only as of today, November 7, 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 our press release, SEC reports and an audio webcast replay of this conference call on our website at www.PublicStorage.com.

Now I'll turn it over to John Reyes.

John Reyes

Thank you, Clem.

For the third quarter, our funds from operations per share decreased to $1.09 compared to $1.43 last year. The reduction was primarily due to a currency exchange loss when converting our intercompany loan from Shurgard Europe from euros to dollars. The loss was approximately $0.31 per share for the quarter compared to a gain of $0.18 last year or a difference of $0.49. We believe that it is highly likely we will incur additional currency loss in the fourth quarter as the dollar continues to strengthen relative to the euro.

After adjusting for non-core items, our funds from operations per share as $1.37 in 2008 compared to $1.27 last year, representing an increase of $0.10 or 8%. This growth was primarily driven by improvements in net operating income generated from our self-storage operations.

The impact from Hurricane Ike on our Houston market was minimal. We have a total of 83 properties in this market and about half of these facilities were temporarily closed due to storm damage or loss of power. We were able to get a majority of these facilities back online and operational within 7 days. By the end of September, all facilities were open for business. Losses from the hurricane damage totaled approximately $1 million.

From a balance sheet perspective, we continue to have excellent flexibility and liquidity with approximately $800 million of cash and access to an untapped $300 million bank line of credit. Further, our retained operating cash flow has and will continue to provide a significant source of capital to fund our future activities. For the nine months ended September 30th we've retained approximately $270 million of operating cash flow.

The commitments against our liquidity include approximately $600 million of debt, of which approximately $200 million matures in 2011 and $200 million matures in 2013, we have a development pipeline which will require approximately $56 million to complete, and we will pay a special dividend to common shareholders of $0.60 per share or approximately $100 million. This dividend will be paid in December and it is associated primarily with the Shurgard Europe transaction.

With respect to the Shurgard Europe JVs, we have not received a decision from the arbitration panel, but we expect one any day. If we decide to acquire the JVs, we've agreed to loan Shurgard Europe approximately $400 million.

Cash returned to our shareholders this year increased by about $250 million in the form of $140 million in additional dividends and $100 million of share repurchases.

With that, I will now turn it over to Ron.

Ronald L. Havner, Jr.

Thank you, John. Let me quickly summarize where we are and where I think the business is headed.

Our operating performance was pretty good in the third quarter, frankly, better than I expected. We generated 900 more net customers than last year, with a 50 percent reduction in media spend. Occupancies also ended the quarter higher than last year. We've now generated higher net moveins every quarter this year.

Our operating people have done a good job and worked extra hard to sustain comparable activity levels. Unfortunately, activity for October is below last year. Move-ins are lower and move-outs are higher. The move-ins are down a couple of percent, but this is to be somewhat expected as we reduced media spend in September and October from 138 market weeks to 21 or an 85% reduction. Move-outs are a different issue and accelerated with the turmoil in the stock market. We will see how this pans out during the balance of the year.

Europe has gotten very soft very fast. While NOI growth was positive, occupancies and street rates are below last year. The days of big expense reductions are behind us. Three of our seven markets had negative NOI growth. Big picture, the operating environment is challenging and we don't see it getting better anytime soon.

With respect to our financial position and liquidity, there is only one thing to say - preferred stock. If you didn't understand why we've issued it all these years, now you do.

With respect to our development pipeline, we really don't have one in the U.S. In Europe we terminated plans for future development and will wind down the existing program as sites are completed in 2009. This will leave us with about 120 wholly owned properties and 70 plus properties in the joint venture.

Regarding acquisition, pricing just keeps getting better. We're glad we didn't buy much over the last two years.

While our crystal ball is no better than anyone else's, it's pretty obvious to us that the cost of capital, whether it's debt, preferred stock or equity, will be significantly higher going forward. If the securities markets are any indication, preferred and debt spreads are 200 to 300 basis points higher for the best companies. We who are second-tier companies simply cannot get public market capital. Risk has been repriced.

This will have a direct impact on capital allocation opportunities. If we were to reflect back to the early '90s and the days of the Resolution Trust or RTC, we purchased loans at discounts from distressed lenders and property at double-digit yields. We shut down our development program early. Why build when you can buy at 60% to 70% of replacement cost?

For some management teams, this will be a period of tremendous opportunity and significant value creation. For others, it will be apocalyptic. Regardless of who wins or loses, the operating environment will be very challenging for everyone as customers, whether they're individuals or businesses, feel the effects from the repricing of risk.

We couldn't be better positioned, not only with excellent financial strength and liquidity, but in a great business - self-storage - which I believe will once again weather the storm better than most forms of real estate.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mark Biffert - Oppenheimer.

Mark Biffert - Oppenheimer

How do you think about rate versus occupancy over the next 12 months as we head into this slowdown and, as part of that, what markets are you seeing the greatest strength versus weakness and how would you allocate your media dollars and your discounting dollars?

John Reyes

We generally try to target an occupancy before we target a specific rate, so what we will try to do is hold occupancy around the high 80s to low 90s and we will do that by adjusting our rate as well as our promotions and, when needed, we will also go on television advertising. We also do a lot of advertising on the Internet. So we will adjust and turn the dials on every one of those items as needed to maintain our occupancy levels. So I guess I'd just tell you that it really varies quite a bit and it varies by market throughout the United States.

In terms of stronger markets versus the weaker markets, I think the stronger markets will retain some strength in the rates. Generally, Denver has pretty strong; Sacramento's been strong, San Francisco, Houston and Chicago. And then the weaker markets are, obviously, the Florida markets, which we've been talking about for a number of quarters now.

Operator

Your next question comes from Jonathan Habermann - Goldman Sachs.

Jonathan Habermann - Goldman Sachs

Ron, you mentioned again that pricing seems to be getting better and you talked about, obviously, the pricing back 10 plus years ago with the RTC and buying at 60 to 70 cents on the dollar, but do you expect to see that kind of pricing for the product that you will be looking at?

And separately, maybe for John, can you comment on what the cost of issuing a preferred might be today?

John Reyes

Well, as I stated, my crystal ball's no better than anyone else's, but if someone would kind of look back in history, I think that's somewhat of a relevant data point. And when you look at the amount of refinancing that's going to happen in the next four to five years, combined with the challenging operating environment, it's hard to understand how cap rates will not be moving up rather dramatically.

As I touched on, if you look at the securities markets, spreads are up 200 to 300 basis points. Three weeks ago our preferreds were trading north of 11%, okay? That's got to work its way into kind of the private market pricing in terms of deals investors need for property.

Jonathan Habermann - Goldman Sachs

You said pricing's getting better. I mean, it's nowhere near that at this point. You're talking about two to three years down the road?

Ronald L. Havner, Jr.

I'm not smart enough to predict when that's going to happen. What we're seeing is, if I could kind of segment it into buckets, the first six to nine months of this year sellers were still reflecting back on 2007 pricing and, quote, waiting for the market to return. With the events we've had in the last 90 days, sellers are realizing that '07 pricing is a thing of the past and they're starting to come down.

And we're starting to see more and more revising pricing, price reduced deals that didn't close - hey, you know, you gave us this bid six months ago, we went with this other guy, are you guys still interested at that price. So, you know, you could kind of characterize it as now sellers are starting to move down, say, 5% to 10%, but in reality the market's down 10% to 15% and probably by the time they get down 10% to 15%, the market will be clearing at 20% to 25%.

What you're not seeing is a lot of transaction volume, so the bid-asked spread, that's an indication the bid-asked spread is still pretty wide.

Operator

Your next question comes from Louis Taylor - Deutsche Bank Securities.

Louis Taylor - Deutsche Bank Securities

Ron, can you talk a little bit more about the media spend in terms of Q3 this year versus last year? How much of that was just kind of normal or a reduction due to the ramp you had ongoing last year versus maybe just a decision to just cut back this year?

Ronald L. Havner, Jr.

Sure, Lou. You know, if you looked at it kind of by month, in July of this year our media spend was actually higher than last year; we had a couple more markets. And if you recall, through June 30 our media spend was quite a bit higher than the first six months of 2007. So we were going pretty hard on the media spend, trying to drive those volumes, as John touched on earlier, higher than last year. And I think we ended June at slightly higher occupancies than last year. And we had a very good July. I think on the second quarter call I touched on what an exceptional July we had. Net move-outs were much better than the previous year.

So as we went into the back half of the summer - August, September - a lot of good momentum, occupancy's higher, and so we started dialing back the television in August and in September. And we weren't smart enough to see what was going to happen there in September and October, and we made our media buy for October in early September because you've got to buy about 30 days and decide which market about 30 days out.

So August/September was dialed down; October was dialed down because we had really good momentum going into August and September. Then September started to get a little sloppy and October I already touched on, so November's media spend will be comparable to last year. But October, as I touched on, is less.

So that's kind of the sequence of what was happening over the summer as we were deciding on media spend.

Operator

Your next question comes from Michael Bilerman - Citigroup.

Michael Bilerman - Citigroup

Just touching on the October trends that you mentioned, can you provide a little bit more color as to whether you think that's relative to just the shock or it's something that will stick? And if you saw more of that response from your existing customer base in terms of move-outs or is it more price resistance and lack of stickiness from new customers?

Ronald L. Havner, Jr.

We saw the trend in October. Is it correlated to the stock market? I don't know, but obviously there was a lot of turmoil. You've seen all the retail sales, consumer confidence - there's a whole bunch of bad things that happened in October. And our move-out trends during the year have been, for the most part, better than prior year. So October kind of really stuck out in terms of okay, for the first time, move-outs are up vis-à-vis last year.

So how long it will continue? We don't know. Is it a one or a two-month thing, three-month thing? We don't know. We'll kind of see how that plays out, and we'll let you know the first part of next year.

Move-in volumes have been reasonably good, as I touched on. In October move-in volumes were down, but that's somewhat to be expected with a, you know, 85% reduction in media spend, you'd expect some reduction there. But demand seems to be pretty good; it's just an uptick in moveouts.

Michael Bilerman - Citigroup

Ron, I said a question on just the capital pricing environment. You talked about the preferred and, as you funded your business, clearly a big driver of that was the preferred has a maturity date of never and that's clearly benefiting you in this environment. But I think you've also talked about the preferred was a good way to fund the business just from a cap rate perspective that you can buy accretively. I'm just wondering how you think the cost of that capital, well, cap rates, is going to evolve as you move forward here.

Ronald L. Havner, Jr.

Well, historically on the preferred - and John, chip in here - historically on the preferreds, there's not been a lot of accretion on what we could issue preferreds at, the coupon on the preferreds visà-vis kind of the capitalization rate on the properties, at least in the one or two years of stabilization. As the properties grew, obviously that created a positive spread.

But the preferred historically have been a pretty good indicator of what the cap rate is on stabilized properties. And, you know, a couple of years ago we were issuing at 6.5, 7, and that's not far off of where some of the properties we were buying. Now that you've got preferreds north of 10, is it a temporary aberration in the capital markets because of all the things that have been going on and are preferreds going to stabilize at 8, 9, 10? I don't know. They've certainly gapped out and, as I said, three weeks ago they were trading at 11.

John Reyes

I mean, historically we pretty much trended to preferreds equaling the nominal cap rate on properties.

Michael Bilerman - Citigroup

Right. So you either need cap rates moving up or the preferred cost coming down for you to be probably pretty active in the transaction market?

Ronald L. Havner, Jr.

Well, no, we said [$800 million] of cash.

Michael Bilerman - Citigroup

Some of that cash may be used up for Europe?

Ronald L. Havner, Jr.

Yes. So, we'll still - we've got plenty of cash.

Operator

Your next question comes from Jordan Sadler - KeyBanc Capital Markets.

Jordan Sadler - KeyBanc Capital Markets

I just wanted to clarify on that last question, in Europe; do you guys have to consent to that transaction?

John Reyes

Yes, we do. A lot of things have to happen before the $400 million has to go out the door - one, we have to win the arbitration, two, we have to consent to buy the interests out, in which case then it becomes a true commitment to us.

Jordan Sadler - KeyBanc Capital Markets

And timeframe on that?

John Reyes

We don't know. Again, we're waiting any day now to hear what the resolution is and hopefully we'll know in the next week, two weeks from now.

Jordan Sadler - KeyBanc Capital Markets

Ron, my question is just on using your capital, what are you waiting to see before you start deploying? I mean, there's opportunities even in some of your competitors' stocks that are high quality that may be trading as high as a 9 or a 10 cap. There's maybe some other distressed opportunities out there. What is it you're looking for? When do you think you'll know if it's the right opportunity to act?

Ronald L. Havner, Jr.

Well, my guess, Jordan, is at the end of the day we will act too soon when we do act because, as I touched on - someone else asked a question about where the pricing's going and, you know, sellers are pretty much getting in their head '07's pricing's gone; they're starting to come down 5%, 10%, the market's moving down 15%, 20%. Does the market move down 50%? I don't know, but when you just take it from a 6 cap to a 9 cap, that's a pretty big change in valuation.

So we're looking at a wide variety of things but, as I touched on, pricing continues to get better and so we're going to be patient.

Jordan Sadler - KeyBanc Capital Markets

Are you still more of a replacement value type buyer today or yield, combination?

Ronald L. Havner, Jr.

I think we're starting to move below replacement cost. As I said -

Jordan Sadler - KeyBanc Capital Markets

But you're focused.

Ronald L. Havner, Jr.

We're walking our talk, okay? We're stopping development in Europe. I don't think development makes any sense, so we're turning it off. I think in Europe as well as the U.S. we'll be able to buy at below replacement cost, so we're turning off development.

Operator

Your next question comes from Christine McElroy - Banc of America Securities.

Christine McElroy - Banc of America Securities

Just following up on Jordan's question, how are you thinking about buying back your own stock today? I mean, the last time you repurchased it was in the low '70s. With the stock back near those levels, can you give us a sense for how you're approaching that thought process?

Ronald L. Havner, Jr.

Nothing's changed, Christine. We look at what we possibly anticipate could happen, the things that we're seeing in the market versus repurchasing stock.

As I touched on before, our preference is to really, whether it's by loans or by properties or shares or debt or whatever, our preference is to deploy the capital where we grow the business but, if those opportunities simply aren't available and the stock is priced appropriately, then we will repurchase shares.

Christine McElroy - Banc of America Securities

What do you consider an appropriately low level?

Ronald L. Havner, Jr.

Oh, now, Christine.

Christine McElroy - Banc of America Securities

Had to try.

Operator

Your next question comes from Michael Mueller - J.P. Morgan.

Michael Mueller - J.P. Morgan

With respect to Europe, when you set up the operations and you kind of molded the operations around the U.S. model, John, you were commenting about trying to keep occupancy high, in the high 80s to low 90s. When we look at Europe, it looks a little different than the U.S. You've got occupancy running below, but your pricing, the pricing's come down but it's still higher. So it looks like it's kind of flip-flopped with what's happening in the U.S. Is that something that will probably change over the next year or two?

John Reyes

Mike, I think one thing you have to remember is in Europe they're just now learning the things that we at Public Storage do here in the U.S. So part of what you're seeing going on in Europe is, I think, the learning curve that they're experiencing so they are getting better and better at pricing.

We, Public Storage, here in the U.S. are not pricing the product for them. We have exported kind of the tools that we use and our methodologies, but at the end of the day [Steven] and his team are doing the pricing and they're learning as they're moving forward and sometimes they may have gotten a little aggressive and now they're scaling back to try to recover from some of the losses in occupancy.

Ronald L. Havner, Jr.

There's also - in Europe, Mike, you have to keep in mind, there's not the product awareness, there's not the scale of business. We don't have a phone center in Europe. We've done some - I think we did some spot television a little bit this year in Europe, but we don't really have the media horsepower in Europe. The Internet is bigger over there than it is here, at least currently. So there's different channels and different levers that Steven and his team have to pull than we have to pull over here, and that also impacts the way they price product.

Operator

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

Mike Salinsky - RBC Capital Markets

Ron, can you just talk about the decision to terminate development in Europe as opposed to just postponing it? I thought the market over; there was pretty limited acquisition opportunities over in Europe.

Ronald L. Havner, Jr.

There aren't a huge number of acquisition opportunities, but what there are, I think some will become available. And, again, I think the continuing of development just simply doesn't make sense in this environment.

Mike Salinsky - RBC Capital Markets

But will it make sense in an environment down the road?

Ronald L. Havner, Jr.

Oh, I'm sure at some point down the road development will make sense again, and we're going to keep a couple of the key members of the team on the staff over there post-winding down of the development program. But I don't think in this environment it makes sense.

Operator

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

Michael Knott - Green Street Advisors

John, when you think about your liquidity in '09 and '10, obviously the note receivable from Shurgard Europe, if that were to be repaid, would substantially increase an already solid position. How do you think about that, the likelihood of that getting repaid today? Is that even possible to get that refinanced through third parties? How are you and your partner thinking about that liability?

John Reyes

Michael, we expect that it will be repaid. Remember, it has a due date of March 31, 2009. It could be extended one additional year through 2010. Where we sit today, obviously, it's probably not - we can't refinance it today because the credits, if they're frozen here, they're even more frozen in Europe. But we still again expect it to be repaid, but it kind of remains to be seen. We think we have time. Our joint venture partner wants to make sure that we get repaid also, but there's nothing right now that we can do on that score. So it's really just to wait and see how the credit markets develop over the next year or two.

Operator

Your next question comes from Lindsey Yao - Robert W. Baird.

Lindsey Yao - Robert W. Baird

I was just wondering, do you have any color on some trends with small business and commercial tenants?

Ronald L. Havner, Jr.

No, we really haven't seen a change in mix or unit sizes. We're not renting more 10 by 10s than 5 by 5s today or anything like that. So I'd say that kind of the customer flows are about the same.

Lindsey Yao - Robert W. Baird

And there's been no change in, say, length of stay, then?

Ronald L. Havner, Jr.

On customers coming in this year, there's been really no - new customers, really no change in the length of stay.

Operator

Your next question comes from Mark Biffert - Oppenheimer.

Mark Biffert - Oppenheimer

Ron, I guess what I was trying to get at before was has there ever been a time over the last 20 to 30 years, in the time that you've been in self-storage, where you've done an increase in discounting and media spend but it didn't have the impact whenever you increased? And given the downturn that we have, if this turns into an extended downturn how do you think about discounting through the cycle if it doesn't have the impact that you expect it to?

Ronald L. Havner, Jr.

Well, to make it simple, you have three levers, right? You've got media spend, you have the asking rates, and you have the promotional discounts, to make it simple. And so you pull one, you pull two, you pull three. I think what - now, given the environment's certainly changed but I think what you saw with the Shurgard portfolio once we bought it in August of '06 is that we were able to reasonably successfully pull those levers and drive the occupancy and drive the rates in the Shurgard portfolio, which I think at the time of acquisition was 500 or 600 basis points below the Public Storage mature portfolio.

So I'm reasonably confident that between those three levers we can hold occupancy and hold customer volumes. What that translates into rates and kind of the revenue growth line, you'll see. As I touched on, we're in a pretty challenging operating environment.

Have I ever seen those three levers not work? No, not in 20 years. They work.

Operator

Your next question comes from [Tia Oksana] - UBS.

Tia Oksana - UBS

With the October trends starting to show some weakness and the last time we had a deep economic downturn you guys had negative [inaudible] to NOI for quite awhile, was there something unique back then that caused the same-store NOI to go down much further than some of your peers or do you kind of expect a world where you could experience the same thing again this time around if the recession ends up being not long, deep or hard.

John Reyes

I think you're referring to in early 2000, 2001 or 2003. We were experiencing negative NOI growth. And yes, that was part of the recessionary pressures that were going on during that time.

But another big part of what happened back then that is not happening now is we changed the way we were marketing our product. We called it payment in arrears. Some of you fondly remember PIA, I think, is what we called it. And it was a failed marketing program back then that caused us probably about; I don't know, three to four quarters to try to recover from, from that marketing effort. And we kind of attribute that to be the biggest reason why we had negative NOI growth during that timeframe. It doesn't mean to say that we wouldn't have been under pressure regardless of it, but I think that was the biggest reason why we experienced negative growth.

We aren't doing that. We abandoned that back during that timeframe. I think we only had it going on for about nine months. But again, it took us about three to four quarters, if not a little bit longer than that, to recoup from it.

Tia Oksana - UBS

Is it possible to break the effects of each factor from your numbers from back then or not really?

John Reyes

No.

Operator

(Operator Instructions) Your next question comes from Jonathan Habermann - Goldman Sachs.

Jonathan Habermann - Goldman Sachs

Just a follow up on Shurgard Europe. In the event that you did provide the additional loan, how would you arrive at the current rate, I guess, for that loan given that the credit markets are in disarray there or far worse than the U.S.? Would it be similar to the existing?

John Reyes

It's a tagalong to the existing loan, Jay, so it has the same terms and conditions. It would be an interest rate of 7.5% per annum; still have the same maturity dates as the existing loan.

Jonathan Habermann - Goldman Sachs

So it's just an extension in terms of the amount?

John Reyes

That's correct.

Operator

Your next question comes from Louis Taylor - Deutsche Bank Securities.

Louis Taylor - Deutsche Bank Securities

John, just staying on that European theme for a second, what are the signs that you've seen that suggest that you might hear as early as next week on the arbitration?

John Reyes

Just what the attorneys tell us.

Louis Taylor - Deutsche Bank Securities

Really? So the arbiter's about to rule relatively soon?

John Reyes

Well, it goes to a tribunal and then it goes to a commission, which reviews it to make sure of the wording and form and all of those things so that it fits the standards over there for the arbitration as it's conducted in Europe. And then when that's done they release it to us. I believe they have up until the end of the year to actually - that's their formal deadline.

Operator

Your next question comes from Chris Pike - Merrill Lynch.

Chris Pike - Merrill Lynch

Ron, can you just talk about the move-outs again? I think you said you had some net move-outs. What are the seasoning of those move-outs? Are the net move-outs more seasoned customers or newer ones before you were able to push rate?

John Reyes

The unfortunate thing is that the move-outs that Ron's referring to that we saw in October; they appear to be more of our seasoned customers, our longer-term customers, leaving at a higher rate than they had in the past. So that's a little disturbing to us, so hopefully that doesn't continue too much longer and it starts stabilizing back to where we've experienced move-out ratios historically.

Ronald L. Havner, Jr.

Look, Chris, that's not due to rate increase letters because we stopped sending those out.

John Reyes

The last rate increase letter we've given out was back in August, so we don't do rate increases to existing customers in the fourth quarter. And the last one that went out was back in August, again, so they're not moving out because we increased their rates.

Chris Pike - Merrill Lynch

And then just real quickly, I guess you touched on Europe and you also talked about the U.S. in terms of replacement values and opportunities. Where are replacement values in Europe where you believe deals are being priced on a per square foot basis today?

Ronald L. Havner, Jr.

Well, in Europe you have huge discrepancies in price per foot, London probably being the most expensive; central Paris being right up there with London, and then the markets kind of tier off of that to Brussels, Amsterdam, Denmark. Germany's probably the cheapest on a per foot basis.

Transaction volume here in the U.S. is probably off 80%, 85%. In Europe it's probably down 90%, 95%. So there's not a lot of data points in terms of what is clearing the market.

Ronald L. Havner, Jr.

It goes to a little what I said earlier in terms of sellers are coming down in terms of pricing, but they haven't come down enough to actually clear this market so you have this perceived very large bid-asked spread.

Operator

Your next question comes from Jordan Sadler - KeyBanc Capital Markets.

Jordan Sadler - KeyBanc Capital Markets

Ron, I just wanted to come back to the share repurchase thing. I know the last time you guys were in the market, Christine mentioned, I think, was in the low 70s. Right now there's a pretty significant dislocation depending on what kind of metric you use between you guys and your peers. What's your view of purchasing your peer's stock versus yours in sort of the significant dislocation?

Ronald L. Havner, Jr.

You know, Jordan, I really can't answer that question.

Jordan Sadler - KeyBanc Capital Markets

Can you tell us whether or not you've purchased any or have any on the balance sheet?

Ronald L. Havner, Jr.

I really can't go there. I'm sorry.

Operator

Your next question comes from Michael Mueller - J.P. Morgan.

Michael Mueller - J.P. Morgan

Can you give us a little more color on the magnitude of what you were talking about in terms of the occupancy decline in October? And, equally important, has it stabilized over the past couple of weeks or is it still trending down?

Ronald L. Havner, Jr.

Well, I think for October move-ins were down 2% or 3% and move-outs were up 2% or 3%, something like that. I mean, we're not talking 5% plus, but it's about 2% or 3% on one side, 2% or 3% on the other side.

In terms of November, I don't know. It's been a couple of days since I looked at it. But even if I were to tell you what I saw two days ago, we generally wait until about the 10th to 12th of the month, where you get a couple of weekends in, to get a real picture of what we think will probably happen for that month.

Operator

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

Michael Knott - Green Street Advisors

Just curious how you thought about the opportunity to maybe buyback some preferred to the extent you could back when it was 11 plus yields? Obviously, liquidity is paramount so it's understandable certainly to want to emphasize liquidity above anything else. I'm just curious how you thought about the opportunity and the trade-off that that presented.

Ronald L. Havner, Jr.

Well, Michael, I think it's an interesting opportunity. I think you've seen a fair amount of insider buying of the preferred stock, but that's something on our radar at the company as well as the shares as well as investment opportunities. So it's just one of the things that we look at. It's not off the table.

Michael Knott - Green Street Advisors

And then if I could just ask you to maybe quantify the net impact in the move-ins and moveouts in October as they compare to the 9/30 occupancy rate?

Ronald L. Havner, Jr.

I want to answer your question, but I'm not sure I understand. What's your question or do you understand?

John Reyes

Michael, I understood your question. We had a positive spread at the end of September. And at the end of October, we were, I think, down a tenth of a point or so.

Ronald L. Havner, Jr.

Versus last year, right?

John Reyes

Versus last year, yes.

Operator

At this time there are no further questions. I will now turn the conference back over to Clem Teng for closing remarks.

Clemente Teng

Okay, we want to thank everybody for attending our conference call today and appreciate all your questions. And we look forward to seeing many of you in the next couple of weeks down in San Diego at the [NARE] conference. We'll see you there. Bye.

Operator

This concludes today's Public Storage third quarter earnings release conference call and webcast. You may now disconnect.

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