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Executives

Ron Havner – President & CEO

John Reyes – SVP & CFO

Clem Teng – VP IR

Analysts

Ryan [Miliker] – Morgan Stanley

Ki Kim – Macquarie Research

Todd Thomas – Keybanc Capital Markets

Dave Brad – ISI Group

Jay Habermann - Goldman Sachs

Christine McElroy – UBS

Andrew [Viau] – BofA/Merrill Lynch

Michael Mueller - JPMorgan

Todd Stender – Wells Fargo

Michael Salinsky – RBC Capital Markets

Ross Nussbaum – UBS

Michael Knott – Green Street Advisors

Paula Poskon - Robert W. Baird

Smedes Rose – KBW

Public Storage (PSA) Q4 2009 Earnings Call March 1, 2010 1:00 PM ET

Operator

Good afternoon, at this time I would like to welcome everyone to the Public Storage fourth quarter 2009 conference call. (Operator Instructions) Mr. Clem Teng, Vice President of Investor Relations, you may begin your conference.

Clem Teng

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 start, 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 risks and other factors that could adversely affect our business and future results are described in today’s earnings press release as well as in our reports filed with the Securities and Exchange Commission.

All forward-looking statements speak only as of today, March 1, 2010, 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 our audio webcast replay of this conference call on our website at www.publicstorage.com.

Now I will turn it over to John Reyes.

John Reyes

Thank you Clem, for the fourth quarter our core FFO per share was $1.33 compared to $1.38 last year representing a decline of 4%. Significant items impacting the quarter included a decline in same store net operating income by $9 million which was partially offset by the growth in our non-same store properties of $2 million.

A decline in interest earned on our cash balances by $5 million due to lower interest rates and interest expense and preferred dividends in the aggregate were lower by $3 million due to earlier repurchases. The decline in our same store revenue and NOI moderated in the fourth quarter as compared to the third quarter.

Revenue declined 3.9% in the fourth quarter compared to 4.6% in the third quarter and NOI declined 3.8% in the fourth quarter versus 6.3% in the third quarter. Notwithstanding the pressure on our operations our financial position remained solid. At the end of the year our leverage ratio including preferred stock was about 23%.

During 2009 we retained a significant portion of our operating cash flow, approximately $430 million or 54% of our funds available for distribution. At year-end our cash balance was approximately $750 million. A portion of this cash balance will be used to redeem all outstanding equity shares of Series A. These securities will be called as of April 15, 2010 at $24.50 per share for a total of $205 million.

Shurgard Europe has a 20% interest in a joint venture that has a $117 million Euro loan that matures in July of 2010. We are actively working to refinance or renegotiate the terms of the loan. Our Board increased the quarterly common dividend by 18% or $0.10 per share. Our consistent long-term dividend policy has been to distribute only our taxable income.

Taxable income attributable to our common shareholders has increased due to recent purchases of preferred securities and equity stock as well as the reduced depreciation offset in part by declines in operating income. Future changes in our dividend will be impacted by these same factors as well as property acquisitions.

With that I will now turn it over to Ron.

Ron Havner

Thank you John, I’ll start with current trends in our domestic same store properties, we started 2009 at 87.1% occupancy, 0.8% behind the prior year. Through aggressive pricing, promotion, and marketing activities and solid execution by field operations, we eliminated this occupancy gap by year-end.

For the first two months of 2010 these positive trends have continued and we ended February 0.6% higher than the prior year. Revenue declines have also continued to slow in Q1 2010 consistent with the trends in Q4. First quarter 2010 expenses will be impacted by significantly higher snow removal cost.

Q1 media will change both in terms of mix and day part and we will be in fewer markets. Media costs will be lower. In Europe we are seeing similar trends. Europe started 2009 at 84.7% occupancy almost 5% behind prior year. We ended the year at 85.7%, a full point higher.

This trend has continued in Q1 with February occupancy ending 0.9% higher than the prior year. The decline in same store revenue and NOI moderated in the fourth quarter as compared to the third quarter. Revenue was down 2% in Q4 compared to down 3% in Q3 and NOI was break-even in Q4 versus down 7% in Q3.

Going into 2010 we expect top line revenue trends will continue to improve resulting in positive NOI growth in Europe. It should be noted that these positive occupancy trends both in the US and Europe are primarily attributable to reduced move outs, not higher move ins.

Turning to acquisitions, during the fourth quarter Shurgard Europe acquired a facility in Central London, for about $5 million. This facility has approximately 15,000 net rentables for our [fleet]. While a mature property, we acquired it out of bankruptcy and it needs to be repositioned.

Opportunities for acquisition in the US are about the same as last quarter, we continue to have more conversations but no consummated transactions. We will remain disciplined. With that I’d like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ryan [Miliker] – Morgan Stanley

Ryan [Miliker] – Morgan Stanley

I was wondering if you can provide any color for us on two things, number one where rates are going through first quarter so far, are we looking at continued deterioration like we saw in 4Q or if things stabilized a little bit more and second if you can give us an idea of where you think corporate G&A is going to be in 2010 versus 2009. Are we looking at up a couple points again or do we think things are going to digress in the opposite direction.

Ron Havner

G&A we don’t expect really any big changes, maybe a couple of percent but that’s about it. Nothing in the works to materially impact G&A that I know about for 2010.

John Reyes

I also think on G&A we disclosed that we think our G&A run rate is somewhere in the neighborhood between $35 and $40 million per annum, at least through the end of 2010. On the rate side, we are still on a relative basis year over year we’re behind last year and what we are charging new tenants to come into to rent space from us, that negative spread has narrowed somewhat but nonetheless its still a negative number.

We are down about 3% to 4% and that’s on average throughout the whole portfolio. In some markets we’re down as much as 10% and in some markets we’re actually up as much as 10%. It just really depends on the market. Globally within our US portfolio we are still down about 4% in our market rents.

Ron Havner

Europe is up about somewhere between 8% and 10%.

Operator

Your next question comes from the line of Ki Kim – Macquarie Research

Ki Kim – Macquarie Research

If I could follow-up on that previous comment, when you say its down 3%, are you saying the market rates are down 3% or this negative spread between [inaudible] and street rates are down 3%.

John Reyes

The year over year spread between market rents is down 3% to 4%. If you’re interested in the what I would say the mark to the market, that’s a different question, unless I missed the [inaudible] of your original question, but I’ll answer that one and this is through the end of February, so just as of yesterday, the negative mark to market spread was 7.8% and that compares to the same time last year where we were down 8.9%.

Ki Kim – Macquarie Research

If things go the way you assume for the rest of the year where would that mark to market average out throughout the year or end up at the end of the year.

John Reyes

I have no idea, it would be pure guess on our part.

Ron Havner

It’s a little hard at this juncture, its February, we’re not into the rental season and we’ve got a significant number of markets impacted by the severe weather so basically from Chicago east and from Charlotte north, the move in move out numbers and kind of what’s happening, the rates are a little distorted because of the severe weather.

Ki Kim – Macquarie Research

I’ve heard mixed things, the severe weather kind of net net help you or hurt you in terms of same store revenue performance because I would think that if there was a severe weather people who would naturally, its because of the net move out season probably wouldn’t move out so would that help you.

Ron Havner

I could tell you no and its not scientific, we’ve kind of analyzed it in terms of snow and non snow markets and our move ins in the snow markets are down 14% versus non snow are basically flat but move outs in the snow are down 22% versus about 10% in the non snow market. So you can kind of draw your own conclusions.

Operator

Your next question comes from the line of Todd Thomas – Keybanc Capital Markets

Todd Thomas – Keybanc Capital Markets

I have a quick question, you mentioned that the occupancy through February in the domestic same store portfolio is up 60 basis points year over year, another self storage company broke down January and February a bit and they noted that January was positive in terms of leasing activity and then February was slightly negative so net net through those two months it was sort of flat in their portfolio. Are you, did you experience similar patterns through the two months.

Ron Havner

No.

Todd Thomas – Keybanc Capital Markets

And then just following up real quick, also on your commentary on the reduced move out activity assuming that move in demand remains pretty consistent at this point, is it possible that you would see occupancy decline during the peak leasing season perhaps.

Ron Havner

Well I think the emphasis here on the improvement in occupancy being attributable to reduced move outs versus move ins, is you should take away from this that pricing power is still pretty, and John just touched on the rental rates and at the end of the day for our business to really kind of move the needle and get the revenue line really moving in a good solid direction, we need higher movement at better prices.

As I touched on earlier we’ve got the snow going on. We’re in February or March, its not the rental season. So I think the better indicator of where the business is going to go for the year, its going to be probably when we do our first quarter call in May we’ll have a better idea in terms of how March and April are panning out.

Operator

Your next question comes from the line of Dave Brad – ISI Group

Dave Brad – ISI Group

You said that acquisition opportunities are about the same as last quarter but on that point have cap rates compressed as they have in other sectors on the transactions that we have seen or at least have you brought down your potential cap rate range from the 8% to 10% range you talked about last quarter.

Ron Havner

Yes, there’s not enough transaction volume to say that 8% to 10% is right. That’s kind of what we’re thinking about and as I also said last quarter I think I did, that we’re a price per pound buyer. What is the price that we’re paying for property relative to the replacement cost and the rental rates achievable in that particular market.

But I don’t think there’s a whole bunch of empirical evidence in terms of transaction volume to really say 8% to 10% is the right price point.

Dave Brad – ISI Group

Just to follow-up on that, one must certainly keep track of what potential construction costs could be in the storage space what’s your view on how much replacement cost has declined over the past couple of years.

Ron Havner

Pretty meaningful, I just look at what Dave [Dahl] and the real estate team were able to do last year, what they’re planning to do this year in terms of our core CapEx items and its across the board. We’re pretty, 15% to 20% reduction we’ve got GT’s doing work for us that basically low profit just covering their overhead.

So on the building cost standpoint I’d say at least 15% to 20%. Land cost all over the board, if you’re in the market that was in a condo frenzy like Miami, I don't know how much land prices have gone down but its got to be orders of 40%, 50%.

Operator

Your next question comes from the line of Jay Habermann - Goldman Sachs

Jay Habermann - Goldman Sachs

Just to come back to the reduced move outs and obviously not seeing the move ins at this point but I guess just to take it a little further, are you basically seeing sort of market paralysis at this point. I know in past cycles whether it was 2001 you had to move from the Bay area to markets like Denver etc., Portland but are you just not seeing the trends this time. I’m just wondering what sort of underlying factors might be driving this reduced move outs.

Ron Havner

Well part of the reduced move outs is we had an acceleration in move outs last year and if you go back to our Q3 2008, Q4 2008, Q1 2009 calls, in each of those calls we talked about a very disturbing trend acceleration of move outs and in fact an acceleration of move outs of longer term customers.

So as we’ve come into Q3 of this year we’ve been telling people, hey I think, we think that the trends are going to be positive in Q4, they’re probably going to be positive in Q1 but its probably going to be due to reduced move outs because we don’t see a lot of pricing power.

So I think the numbers that we’re reporting both at year end and through February are an affirmation of the trends that we talked about a year ago as well as what we were anticipating coming into Q1 of this year. We’ll see what happens as we move into the rental season in terms of really true customer behavior.

Of course we’re happy that the move outs are down. That’s a great sign, customers are staying longer and obviously the properties are filling up.

Jay Habermann - Goldman Sachs

And what’s the data year to date in terms of move outs versus move ins.

Ron Havner

Move outs year to date are, you probably want the change right.

Jay Habermann - Goldman Sachs

Sure.

Ron Havner

So move outs are down about this is in the same store pool, about close to 14,000 and move ins are down about 6,500 so net net we’re up about 7,000 customers in the first two months. And we were positive in both January and February.

Operator

Your next question comes from the line of Christine McElroy – UBS

Christine McElroy – UBS

I’m just following up on your comments regarding the $117 million euro Shurgard Europe JV debt coming due in July, has the market for pan European lending come back such that the loan could be refinanced without you needing to step in and provide the capital. I know it was pretty closed as of January and if the lending market is still sort of shaky, is this something that can be used as leverage for Shurgard Europe to buy out its partner.

John Reyes

That’s a big question, on the lending environment I don't know that its changed that much. We think its gotten a little bit tougher. My gut feeling is, is that we will get it refinanced. I don’t know that it will be with the same lending group and I doubt that it will be under the same terms and conditions that we experienced over the past couple of years with that loan.

But our team in Europe is really the team that’s leading the charge here and they’re doing an outstanding job to try to get this loan put in place and we don’t know at this point in time what needs to happen in terms of whether we need to pay down the loan, put some more equity into it or what have you. Its still too early in the process right now to comment on that.

And then with respect to leverage using leverage to buy out our JV partner, we really don’t have anything to comment on that at this time.

Operator

Your next question comes from the line of Andrew [Viau] – BofA/Merrill Lynch

Andrew [Viau] – BofA/Merrill Lynch

If I can just go back to your data of occupancy given that you have positive momentum into 2010 with occupancy but as you mentioned because pricing remains anemic, as you approach peak leasing season what are you expecting and will you be doing anything differently in terms of strategy.

Ron Havner

Could you narrow that a little bit in terms of strategy with respect to what.

Andrew [Viau] – BofA/Merrill Lynch

Sure, given the trends you mentioned if one tried to think about what your strategy was going into last year’s peak leasing season versus this year’s just wanted to get a sense if you are approaching this peak leasing season any differently or will it be the same way as last year.

John Reyes

I’d tell you that we, our strategy will continue very much the same as it was last year unless we start seeing a marked improvement in demand for the product. So, until that point in time we’re going to continue to conservatively price the product. We’re still offering the dollar special. We’re still on television advertising the product. We are still going to be relatively conservative with how we increase rental rates to existing customers.

So right now given what we’ve seen so far our strategy is very much the same as it last year unless something turns that around which so far we haven’t seen that.

Operator

Your next question comes from the line of Michael Mueller - JPMorgan

Michael Mueller - JPMorgan

Question on Europe, you threw out some pretty good stats in terms of where the rents seem to be rolling to you and the occupancy being higher year over year I guess when we look at that compared to the US are the markets just that different at this point or would you characterize it more as the Europe business got slammed earlier in 2008 so you’re just kind of digging out of a bigger hole a little faster.

Ron Havner

As I think about that, each of the markets in Europe are a little, they’re a fair amount different. London is a lot different than Paris, it’s a lot different than Stockholm, and then you come here to the US and Florida and the southeast have been so hard hit and very challenging for us and in the last six, eight months California has been very challenging.

So its very hard for me to draw a macro conclusion on Europe versus the US. We’re obviously very excited that Europe is moving ahead. They moved down faster than us. Steve was very aggressive in cutting rates as well as accelerating media advertising and expanding promotional discounts and I think he got his positive momentum there in Q4 and coming into Q2 is great and as I said I think you’ll see some positive NOI out of Europe this year.

But it’s a little hard for me to generalize Europe’s trends versus the US because we have such differences especially even here in the US. I’m not really answering your question because I don’t—

Michael Mueller - JPMorgan

It doesn’t just because the numbers are so far off but I think you probably answered it as best you could.

Ron Havner

I’m not sure, some people have, I’ve seen some people say that Europe is a leading indicator for the US, I’m not sure I would go there, just the whole supply situation in Europe is so different than the US and then our concentration is in Europe are different than the US market so I’m not sure I could extrapolate Europe is going to be a leading indicator for the US.

Michael Mueller - JPMorgan

Can you just quantify what those snow removal costs were in the first quarter and the fourth quarter.

John Reyes

I don’t know the fourth quarter because probably a lot of that cost is really going to hit in the first quarter. We’re estimating right now about $1.5 million to $2 million of snow removal costs.

Ron Havner

But that changes with each snow storm.

Operator

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

Todd Stender – Wells Fargo

In general this is for property taxes, in general are you having any success containing property tax increases just in light of state and municipal budgets.

John Reyes

We are having success in terms of appealing assessed values that we’ve been somewhat successful and real happy with. The problem is there’s a lot of municipalities are also affecting and increasing the tax rates and those you can’t, you just can’t fight the rates. So overall our tax expense, property tax expense have been rising on a global basis.

We do the best we can on what we can fight but the municipalities have kind of fought a different battle on the rate side. That’s a battle that’s very, very difficult for us to win.

Todd Stender – Wells Fargo

Can you give us any guidance on the percentage increase you expect for this year.

John Reyes

I would say that it would be probably, we’re estimating somewhere in the neighborhood of about 4%.

Todd Stender – Wells Fargo

Just switching gears, are there any markets that you have identified where you can come out of this downturn owning a bigger slice of market share, just based on the fact that you probably have better financial footing than most of your private competitors.

Ron Havner

So is the question are we targeting specific markets to increase share.

Todd Stender – Wells Fargo

Yes.

Ron Havner

The answer is no, we’re open to opportunities across the US, we operate in 38 states, we’re in the major metropolitan centers so we’re happy to buy in Miami, just as we are in Houston, just as we are in LA, assuming we can get our head around what’s the opportunity of the asset. We’re happy to buy empty properties as well as full properties.

It really depends on what that opportunity set is but we have no particular target markets.

Operator

Your next question comes from the line of Michael Salinsky – RBC Capital Markets

Michael Salinsky – RBC Capital Markets

A couple of your peers in their guidance they provided suggested the potential for positive revenue growth in the second half of the, given the embedded roll downs that you have seen, occupancy pushes, things of that nature, would you expect your portfolio to perform similarly.

Ron Havner

We don’t really make revenue forecasts out that far. We kind of give you real time data in terms of February and you can extrapolate from that however you want.

Michael Salinsky – RBC Capital Markets

And then just touching upon the limited opportunities I think you mentioned is it more a function of pricing, is it a lack of assets, a lack of asset quality, what seems to be the big driver there.

Ron Havner

I’d say there’s two big things, macro things if you think about it. One if you’re an owner and you have substantial equity in your property. You’re probably not thinking that this is the all time great environment to sell. Many buyers have limited to no financial capacity. Operating trends have been down and so you’re waiting for probably more favorable operating trends and a more robust competitive environment in terms of potential buyers for the assets.

Macro trend two is if you don’t have equity in your property, you overpaid and the loan is substantively worth more than the value whether you use and eight or a 10 or a seven cap rate, the bank essentially owns the property and has been widely reported banks are not exactly moving aggressively to foreclose on assets especially if they’re paying interest.

And with interest rates down where they are doesn’t take much to keep the loan current. So I’d say those are two kind of big macro trends that are impeding acquisition or transaction volume.

Michael Salinsky – RBC Capital Markets

You haven’t seen any change in the latter year to date at this point.

Ron Havner

The only observation I would make is people are less optimistic that or not optimistic, growing a little more impatient in terms of wanting to sell. If you wanted to sell two years ago and you’ve been holding you’re probably a little less patient today in terms of wanting to sell than you were two years ago.

Operator

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

Ross Nussbaum – UBS

Can you talk about your appetite to redeem additional preferreds, it looks like you have a whole bunch trading at 7.25-ish, maybe a little better than that. You have a whole bunch that can be redeemed, how do you think about your capital when you say, okay I can buyback my stock at a 6.50 cap, I can buy my preferred at 7.25, I can potentially buy assets in the open market at 8% plus if there are any, how do you think about all those opportunities vis-a-vie your growing cash balance.

Ron Havner

I think what you’re seeing is that we’re going to, we consider the cash an important asset and we’re going to patiently wait to deploy it when opportunities come to do something really on the balance sheet side of it, we’ll do it which is redeem the equity stock like we’re doing here this quarter.

A year ago we were out in the market buying preferred stock at 10% and 11% and we spent a fair amount of money doing that and we’re hopeful in terms of the acquisition front but we’re going to be patient in that regard. In terms of redeeming preferred, I’ll let John talk about kind of what we could issue versus redeem it.

John Reyes

Typically when we’ve redeemed preferreds we’ve refinanced it by issuing a lower rate preferred thereby still maintaining the level of leverage and just really knocking down the coupon that we pay. Today as you mentioned we do have a number of preferred issues, sub series better [callable] we roughly I think we have about $900 million but to issue a [inaudible] preferred its going to be well in excess of coupons that we can redeem at.

So until such time that we see that we can issue preferreds, new preferreds at levels less than existing preferreds, we probably are not inclined to be redeeming any of our outstanding preferreds right now.

Ross Nussbaum – UBS

So the Series A was obviously just a one-off given the nature of that security.

John Reyes

That one had a 10% so that one was well above what we can issue a preferred at, not that we need to because we have cash to do that particular one plus it was kind of an unusual security as everybody is aware of, and we felt it was also no longer necessary in our capital structure so the earliest we could redeem it was coming up March 31 and so that was the decision was to finally take it out.

Operator

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

Michael Knott – Green Street Advisors

I think you mentioned that the media spend in 1Q would be down compared to last year, I know last year was pretty high but in the context of still a tough new move in environment how do you think about the media spend and maybe why not consider being more aggressive given the demand conditions you described.

Ron Havner

Really the swing in the media spend Q1 2009 to Q1 this year is cable. We spent I want to say about $3 million in cable last year as a test and our analysis albeit not scientific basically showed us that, hey if we’re getting anything for this its really hard to figure out and so we’ve dropped, the big swing year over year is we’ve moved out of cable this year. We’ve also as I touched on a little bit shifted day parts for the media and are doing more fringe prime so our cost per TRP has moved up so to your point it’s a tough rental environment why aren’t we spending more.

Well we are spending more per TRP this year versus last year.

Operator

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

Paula Poskon - Robert W. Baird

Just to return to the acquisition environment discussion, obviously with so much cash on hand I’m sure you must be the first call that any potential private sellers would make which must provide you with a unique view of the opportunities that might be on the market, are you currently evaluating any sizable opportunities from private sellers and if so are you seeing more activity or activity concentrated in certain markets.

Ron Havner

I think I touched on our, I’ll repeat what I think I said last quarter which was the phone is ringing more, people are calling more often, people that we talk to awhile back and said that we were interested, they’re calling back but we still have no consummated transactions. I hope that addresses your question but we’ve got nothing consummated but the phone is ringing more.

Paula Poskon - Robert W. Baird

But are you seeing the activity, are you seeing the phones ringing from certain markets more than others, more activity by market.

Ron Havner

I couldn’t answer that, I’m sure if I had Dave [Dahl] or Mike [McGowan] here they could answer that but I’d say there’s nothing market specific that I recall.

Paula Poskon - Robert W. Baird

And just a housekeeping follow-up question on the $1.5 million in snow removal costs, that’s the total cost, how much did that exceed what you would normally see or what you budgeted for.

John Reyes

When I answered that question, what I should have said that’s the incremental increase.

Operator

Your next question is a follow-up from the line of Todd Thomas – Keybanc Capital Markets

Todd Thomas – Keybanc Capital Markets

Just wanted to follow up you are not typically prognosticators but in your commentary you mention that you think Europe will see positive NOI growth this year and I’m curious about that forecast or anticipated growth if that’s just a, what that’s a function of, is that a function of your confidence in what you’re seeing in the markets this early or and does that make you maybe more interested potentially in investing to a greater extent through the Shurgard Europe trade venture.

Ron Havner

The trends in Europe have been getting better for the last couple of quarters with basically going flat NOI growth in Q4. As I touched on rates are up, occupancy is up, we’ll probably spend less media this year. As I touched on earlier Steven and his team really hit the accelerator in the first half of last year on the media spend to address the erosion in occupancy. So our guess here is at least through February the media spend is going to be lower than last year and with positive, where the spread is in terms of rental rates and where we’re moving in terms of occupancy and reduced media kind of leads one to conclude we should be positive NOI.

How much I don’t know.

Todd Thomas – Keybanc Capital Markets

Would that make you more inclined given even sort of the potential for growth there, I know that’s not necessarily a leading indicator for the US but would that mean given the ability to gain traction that you’d be more interested maybe than you previously were in investing incrementally through Shurgard Europe.

Ron Havner

The Shurgard Europe is a joint venture with a New York common retirement fund so it takes two of us to want to invest more and I would just say that both parties are always interested in value enhancing acquisitions whether it was a year ago or today so the improvement in trend doesn’t really change our perspective a good deal.

We would have done a good deal last year just as we’d do a good deal today.

Todd Thomas – Keybanc Capital Markets

And can you just remind us of the mechanism on the first and second Shurgard joint venture should you decide there was an opportunity there to buy, sell, or what.

John Reyes

Either party can elect to come out of the joint venture by electing to either sell their interest in which case the other party does have an opportunity, I guess if the other side decides they want to sell their interest we have an opportunity, we through Shurgard Europe have an opportunity to buy that interest and if we elect not to then they can go sell it to a third party.

We also could elect to buy their interest at some stipulated formula which we could trigger now at any time on either one of those joint ventures.

Operator

Your next question is a follow-up from the line of Ki Kim – Macquarie Research

Ki Kim – Macquarie Research

Just to follow-up on that previous question, is the buy sell pricing is it on appraisal or depending on how its done is it based on, like you said the Shurgard mechanism, if you could kind of describe the formula for that.

John Reyes

Again its not a buy sell, the other side could elect to come out and in which case we’d have an opportunity to buy their interest and if we fail to buy their interest they can go market it to a third party or we could elect to buy them out at a stipulated price. I guess without going through all the complications of the agreement, I think you can assume that fair market value is probably the price either way that would have to be paid to buy them out.

Ki Kim – Macquarie Research

And do you appraise any NAVs for Shurgard Europe or when was the last appraised NAV.

Ron Havner

Last year, the joint venture requires that an appraisal be done on all the Shurgard operations each year.

Ki Kim – Macquarie Research

And is that in the 10-K or can you remind us what that was last year, what cap rate.

John Reyes

It was not in the 10-K and its not a number that we have previously disclosed.

Operator

Your next question is a follow-up from the line of Jay Habermann - Goldman Sachs

Jay Habermann - Goldman Sachs

Just switching back to the US can you just update us on just what you are seeing in terms of product and opportunities on the market, especially for the quality that you would seek to acquire. Are we talking a couple hundred million or are you seeing as much as a billion and I guess separately you mentioned sort of price per pound is the driving metric so where are you seeing pricing today relative to replacement costs.

Ron Havner

I’m going to disappoint you here in this answer, okay, there’s not a lot happening. We don’t have any transactions consummated and the, so I can’t say that its 100 million or a billion or anything like that. The phone is ringing more. We’re more active. We’re talking to more people. But there’s nothing really consummated to give you kind of a true data point to say this is kind of where things are trading. I know that’s not the answer you wanted but I really, there’s nothing for me to really point to.

Jay Habermann - Goldman Sachs

So when you mentioned sort of price per pound, what’s your sort of sense today of what pricing would be versus replacement cost.

Ron Havner

As I think started saying a year ago, year and a half ago when we basically stopped all the development activities in Europe and wound down whatever we had here in the US I believe you can buy below replacement cost. How much that is, is a per transaction, but someone asked what has happened to replacement cost, well the steel, the roofs, the land, its all less than it was last year and you’ve got most of the industries at negative NOI trends, so you can buy it basically below what, I think you can buy it below what it costs to build new.

How much we don’t know because we don’t have a lot of transactions to point to but that’s our belief.

Operator

Your next question comes from the line of Smedes Rose – KBW

Smedes Rose – KBW

Was just wondering your CapEx spending that you included in your 10-K also has a line item for a $10 million construction commitment and wondering what that’s for and then just also, just trying to back into some same store numbers for the fourth quarter and it looks like Illinois was particularly hard hit in the fourth quarter and I was just wondering was there a tough year over year comp there or is there something going on in that market maybe relative to some of your others.

John Reyes

The comment on the Illinois property taxes, yes it is a tough comp last year we had, in the fourth quarter we had an over estimate of our accrual that was turned around in the fourth quarter of 2008 which gave us a very difficult comp which is what you’re seeing this year. So you’re seeing Illinois property tax or the NOI number from our Chicago properties being negatively effected in the fourth quarter.

So that’s just really an accounting on how we did the accrual in 2008 versus 2009.

Ron Havner

In terms of the construction stuff, really that’s properties I believe that we have under redevelopment.

Operator

Your final question is a follow-up from the line of Ross Nussbaum – UBS

Ross Nussbaum – UBS

What was the logic behind expanding the Board from 11 to 13.

Ron Havner

Logic, well we had two outstanding individuals that were available, Ron [Spogley] and Dick [Paladian] and they were available and so we wanted to add them to the Board and you can probably look at the proxy and see that some of our Directors, we have several Directors, 70-plus, and so we want to bring on new Directors sooner rather than later.

Ross Nussbaum – UBS

So I should infer that 13 may not be your long-term goal in terms of the size of the Board.

Ron Havner

I wouldn’t infer anything.

Ross Nussbaum – UBS

Other question was on the legal office, what prompted the change there.

Ron Havner

Well we didn’t have our previous General Council, Brian left last year and so this is his replacement.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Clem Teng

I want to thank everybody for attending our call this afternoon and we’ll be talking to you next quarter around the beginning part of May. We’ll talk to you then, have a good day.

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Source: Public Storage Q4 2009 Earnings Call Transcript
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