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Executives

Clemente Teng - Vice President of Investor Services

John Reyes - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

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

David F. Doll - Senior Vice President and President of Real Estate Group

Analysts

Christy McElroy - UBS Investment Bank, Research Division

Michael Knott - Green Street Advisors, Inc., Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Ki Kim

Swaroop Yalla - Morgan Stanley, Research Division

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Public Storage (PSA) Q4 2011 Earnings Call February 24, 2012 1:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Public Storage Fourth Quarter 2011 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Clem Teng. Sir, you may begin your conference.

Clemente Teng

Good morning, and thank you 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 February 24, 2012, 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 an audio webcast replay of this conference call on our website, at www.publicstorage.com.

Now I'll turn the call over to John Reyes.

John Reyes

Thank you, Clem. Our fourth quarter core FFO per share was $1.66 compared to $1.45 last year, a 15% increase. Five items contributed to this growth: First, our same-store net operating income increased by 6.1%, adding $0.09 per share; nonsame-store properties provided $0.03 per share; buying affiliated partnership interest in the third quarter added $0.02; our investment in Shurgard Europe added $0.02 per share, driven primarily by Shurgard's first quarter acquisition of the remaining interest in 2 joint ventures; and lower financing cost added $0.05 per share. We recently completed several capital transactions in the first quarter. We issued $460 million of 5.9% preferred stock, a record low coupon rate for us. We also announced the redemption of 3 preferred series totaling $357 million, having a blended rate of 6.75%. There will be a charge recorded in the first quarter associated with redemptions of about $13 million or $0.08 per share.

As a result of recent capital transactions, preferred dividends are expected to be about $4 million lower in the first quarter. In November, Shurgard Europe completed the refinancing of its joint venture loans with a new EUR 215 million term loan. This new loan, which will mature in November of 2014, has an interest rate of about 125 basis points lower than the joint venture loans. We also extended the maturity date of our 9% loan to Shurgard Europe to February 2015. We expect nominal paydowns on our loan in 2012. We increased our quarterly dividend to $1.10 per share, representing an increase of 16%. Since 2007, our dividend has more than doubled. Our consistent long-term dividend policy has been to distribute only our taxable income.

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

Ronald L. Havner

Thank you, John. The fourth quarter benefited from higher occupancy and better pricing. Our same-store movements were up 2% year-over-year in the quarter, offset by higher move-outs of 3%. By the end of January 2012, occupancy, in-place rents and asking rents were all higher than the same period last year. In Q4, all of our markets achieved positive revenue growth. The Detroit and Dallas markets led the country, with growth of about 8%. Los Angeles, our largest market, grew by 3%. San Francisco, our second largest market, increased by 5.4%, and the northeast markets grew by 6.1%. Given these positive trends in occupancies and rates, we expect our Q1 media spend will be about $1 million lower. Overall, we had a solid 2011. Our same-store properties generated NOI growth of 6% and we achieved record high occupancies of 91.1% for the year. We acquired about $500 million of various property interests and reduced leverage both debt and preferred by another $500 million. We have positive momentum going into 2012.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Christy McElroy of UBS.

Christy McElroy - UBS Investment Bank, Research Division

I realize that you wouldn't give specific guidance on this, but I'm wondering, given the fundamental trends appear to be slowing in the European portfolio, I'm wondering if you could talk about expectations for performance this year? Do you think that revenue growth can remain positive in 2012? And can you talk about the success that you've had pushing existing customer rents in Europe versus what you've been able to do in the U.S.?

Ronald L. Havner

Okay, Christy, while I think that in 2012, we'll have a pretty challenging operating environment in Europe, whether we have positive revenue or NOI growth, I'm not going to comment on that. But I think it will be a challenging operating environment. France, our largest market, has slowed down. The bright spot, I think, for us in Europe in 2011 and going in 2012 is London. We rolled out a new website, new online pricing, last year in London, and we were able to drive occupancies to 87% in the fourth quarter, up from 83.7% last year. So a nice uptick in occupancy and you could tell at 87%, I think that's higher than the overall portfolio average of about 85% for the quarter. So bright spot is London.

Christy McElroy - UBS Investment Bank, Research Division

Are you pushing existing customers rents?

Ronald L. Havner

Yes. We moved the pricing function for Europe here into Glendale in June of last year, and we've got a nice pop on rental rate increases in Europe in Q3. With respect to what we're going to do in Europe in 2012, John, do you have any?

John Reyes

We're going to continue to send out increases, Christy, just like what was happening last year, probably send out more increases to existing tenants and probably a little more aggressive on the rates than what was done last year.

Operator

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

Michael Knott - Green Street Advisors, Inc., Research Division

Ron, just would like to see if you want to comment on sort of your general outlook for the business in 2012, given sort of the juxtaposition of a seemingly better economy and a little bit of momentum for your business compared to maybe some concerns on oil and gas prices.

Ronald L. Havner

Well, Michael, I don't think I'm quite capable of commenting on the impact of oil prices on the economy or us. What we're seeing in January and into February is good momentum on the business in terms of move-in volumes. We're gaining some pricing power, and our occupancies are up over last year, which in January, end of February. So far, we're into Q1, we're feeling pretty good. I think the occupancy spread will narrow as the year goes along, which we touched on, I think, in the last quarter. So this will be a year of pricing and rental rate increases to existing customers, but we're feeling pretty good.

Michael Knott - Green Street Advisors, Inc., Research Division

How have the last few months and maybe the beginning of 2012 compared to what you would have thought?

Ronald L. Havner

Better than I would have thought. John? Doing good?

John Reyes

Yes.

Ronald L. Havner

So yes, better than we anticipated, Michael.

Operator

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

Michael W. Mueller - JP Morgan Chase & Co, Research Division

It looks like you're finding some stuff to buy. I think you have about $40 million under contract. Can you just talk about what you're seeing in the acquisition market? Are you seeing more product, less product? Just any comments there.

Ronald L. Havner

Yes, Michael, we got David Doll here. So I'll let him touch on that.

David F. Doll

We are seeing an increased amount of owners coming to market, at least testing the waters this year than we did in the fourth quarter of last year, whether it be refinancing risk, certainty for tax structure, for closings in 2012, but we are beginning to see an increase in owners testing the waters. Clearly, the consolidation that we saw, that has been talked about, continues. I think last year the 4 REITs closed on about $1 billion worth of transactions versus about $400 million the prior year. So I think we'll see that trend continue into 2012.

Michael Knott - Green Street Advisors, Inc., Research Division

How would you characterize pricing? Does it feel like the sellers have what you consider to be realistic expectations?

David F. Doll

Sellers are struggling with deterioration to their operating results. So cap rates, about the same, maybe a tick lower, but clearly on trailing results. Pricing hasn't changed that much.

Operator

Your next question comes from the line of Ki Bin Kim of Macquarie.

Ki Kim

Given that your occupancy level is hitting that structural ceiling, how does that make you think about being more aggressive on the street rate increases or sending out rent increase letters to your existing customers? Does that make you more aggressive? And also, have you thought about switching to not just sending out in March, but maybe a rolling year type of plan?

Ronald L. Havner

Ki, we have been more aggressive on our street rates, for the most part. I think what maybe you'll see us is turning back down on the discounting somewhat as we move forward. In terms of increases to existing tenant base, I would say that we're probably going to be pretty consistent with what we did in 2011. We had sent out more letters than we had the prior year and the average increase was about 8%, 8.5%. So I think you should see that we'll probably continue that policy. Will we change to a more of a rolling year? No.

Ki Kim

Okay. And just the second question. It's been over a year, I think, since your A-America transaction. Could you just comment on the returns that you've seen from that portfolio of purchase and what kind of growth you've been able to pull out of that acquisition?

Ronald L. Havner

I could tell you that the returns on that portfolio for the year were -- for this past year were approximately 8.5%, and there's a number of properties that are still relatively going to fill up. I think the average occupancy of that portfolio, I think for the fourth quarter, was somewhere in the neighborhood of about 84%. So we still haven't yet gotten it to where our same-store portfolio is performing. Most of that is here in Los Angeles. So there's still more room to grow on that.

Operator

Your next question comes from the line of Swaroop Yalla of Morgan Stanley.

Swaroop Yalla - Morgan Stanley, Research Division

I was just wondering, your realized rent moderated slightly this quarter. Last quarter, it was 4% year-on-year -- it's 3.4%. Just wondering, is that because of some increase in discounting or is the moderation you're seeing in street rates?

Ronald L. Havner

Are you talking about the sequential trend between third quarter and fourth quarter?

Swaroop Yalla - Morgan Stanley, Research Division

No. Just the year-on-year realized rent per square foot.

John Reyes

Well, the realized rent per square foot in Q4 was up 3.4%. For the year, it was up 2.8%. So rent, it moved up in Q4. So not sure if I know what your question is.

Swaroop Yalla - Morgan Stanley, Research Division

Yes. What I meant was in the third quarter, it was up 4% year-on-year. It's still growing. I was just wondering if this was a slight moderation in the growth.

Ronald L. Havner

One of the things that happened in the third quarter is we sent out a huge volume of rental rate increase letters, which had a significant impact of bumping that rent -- realized rent per square foot during the third quarter. But as time marches on, some of those tenants move out and they turn over generally in the fourth quarter. And so you'll see kind of a rent rolldown that happened, which is what you're noting. So that growth rate has moderated as a result of it.

Swaroop Yalla - Morgan Stanley, Research Division

That's helpful. One question, turning to expenses. Your peers talked about expenses expected to be higher compared to the last 2 years. Are you seeing similar pressure from property tax increases in your portfolio for 2012?

Ronald L. Havner

I could comment on property taxes. Definitely, property taxes, we believe, are going to be higher than we saw in this past year. In fact, we are internally budgeting that property tax, this will probably be up somewhere in the neighborhood of 4% to 4.5%. So definitely higher than the 2% that we saw for fiscal 2011.

Operator

Your next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

I'm on the line with Jordan Sadler as well. Just a quick follow-up question, maybe for David, on acquisitions. How would you characterize the quality of what you're seeing now versus what's been transacted throughout the industry as a whole over the last 12 months or so?

David F. Doll

I don't think there's a change in the quality. The transactions that occurred over the last year were generally relatively good portfolios in major markets. And I think that's what you'll see, at least us focusing on in the coming year as well.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And then just for Ron, just a little bit of a bigger picture question in terms of your portfolio. Are you seeing any changes to the quality of the renters in your portfolio? Anything you can point to in there, maybe willingness to take higher prices or any change in their length of stay or anything along those lines?

Ronald L. Havner

I would say no. Last year, as John touched on, we sent out more rental rate increase letters. We were a little more aggressive on the rates in terms of what those rate increases were. And yet, our percentage of customers in the portfolio greater than one year end of Q4 at about 56%, the same as last year. So we've not seen an uptick in the churn rate of our longer staying tenants.

Operator

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

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Ron, you touched a little bit on street rates, and with your occupancy elevated, I'm assuming you're going to be pretty aggressive in dialing back concessions. Can you give us a sense of what your expectations are for street rates in 2012?

John Reyes

This is John. I mean, we can't give you a sense because we don't know. We kind of play it by ear, trying to maintain a certain occupancy level and revenue growth. So we will fluctuate our street rates as needed and our discounting will likewise also fluctuate as we go by. So we can't sit here and give you kind of some projection or estimate of what we think street rates will be.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Can you give us a sense of what they were in January, how far ahead?

John Reyes

They were up probably about -- January is, we're up about 7.5%.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. And then my follow-up question, can you talk a little bit about your capital spending plans for 2012 between recurring maintenance as well as any redevelopment plans?

Ronald L. Havner

The maintenance CapEx, Mike, it should be about the same as 2011, maybe slightly lower, and then the -- so that's mainly CapEx. R&M should be flat to slightly down in 2012. And in redevelopment, I think we've got $25 million, $30 million of stuff in the hopper right now, but we'll have some more starts going on during the year. So probably $40 million of redevelopments will actually -- the money will out the door this year. 4 or 5 of those redevelopments are the A-American properties that someone asked about earlier. We've gotten the plans done and those will be under redevelopment this year. And so those are some of the bigger properties with occupancy opportunities for the balance -- later in 2012 and into 2013.

Operator

Your next question comes from the line of Eric Wolfe of Citi.

Michael Bilerman - Citigroup Inc, Research Division

It's Michael Bilerman speaking. Ron, can you just talk about, you said occupancy was higher January, February, but you didn't specify how much over relative to last year. Can you just sort of give us a number of where occupancy is trending?

Ronald L. Havner

Well, I'll give you January, Michael. January, we ended at 89.8% versus 89.1% the prior year, so up 0.7%.

Michael Bilerman - Citigroup Inc, Research Division

And then, I guess your comment was that those increases should moderate during the year, but be offset by higher rental rates effectively to come out to a growth profile that's probably similar as you start baking in the increases you had from last year also.

Ronald L. Havner

I'm not sure I follow, Mike. Baking in the increases from last year?

Michael Bilerman - Citigroup Inc, Research Division

Well, you've increased rents during 2011. Obviously, there's a full year effect of some of those increases if the tenants stay in 2012?

Ronald L. Havner

Yes. Well, I guess there's 3 or 4 things, Mike, if I understand your question correctly. So we're going through Q1. Today, we're at higher occupancies. January, I gave you. So I mean, these Q1 occupancies should be higher than last year. We've got rental rate increases, which we're starting to send out. John touched on it about the same as last year. Pricing is up. Someone asked about that, what the pricing, was up 8%, 10%. And then the fourth variable will be promotional discounts, which we will probably dial down as we get into the summer months because we'll be at a higher occupancy level and feel better about it. Dial down discounts because we're basically full. That will be the variable that we'll play with as the year progresses.

Michael Bilerman - Citigroup Inc, Research Division

And then just -- one just on global sort of expansion. You obviously have the stake in Europe. Is there any opportunity at all to consolidate Public Storage Canada? And I assume you can't go into that market other than through that vehicle or maybe you could, but that would, I guess, kind of strange, or any other sort of global markets that you're looking at?

Ronald L. Havner

Well, we're presented with opportunities from a variety of portfolios around the world, so we're always thinking about those. With respect to Canada, that portfolio is owned by the Hughes family. It's really up to them whether they want to sell or not. But our arrangement with them does not preclude us from going into Canada. They have the right to use the Public Storage name, but we could go into Canada as well and also use the Public Storage name. So there's no exclusivity in that arrangement for them with respect to Canada.

Michael Bilerman - Citigroup Inc, Research Division

And do they have any desire to trigger a sale and how does that process work? I mean, obviously, Wayne and the family have sold stock in the company and reduced their stake. Is there a desire also to reduce the ownership and do you see that as a sort of near-term opportunity?

Ronald L. Havner

I don't know what their plans are, Michael.

Operator

Your next question comes from the line of Christy McElroy of UBS.

Christy McElroy - UBS Investment Bank, Research Division

John, I just wanted to follow up on something you were talking about in your opening comments. You said that the loan triggered Europe's new EUR 215 million term loan with Wells, 125 basis points lower. Is that lower than the 9% loan that you currently have with them?

John Reyes

No, it's lower than the 2 joint venture loans that were repaid off.

Christy McElroy - UBS Investment Bank, Research Division

Okay, so what was that? I'm sorry.

John Reyes

The rate on the new loan is EURIBOR plus 175.

Christy McElroy - UBS Investment Bank, Research Division

Okay. And you also talked about nominal paydowns in 2012. I assume you were talking about the EUR 311 million loan. Can you just quantify how much you expect and are there any prepayment penalties associated with that?

Ronald L. Havner

On the EUR 311 million loan, which is our 9% loan, the loan at Shurgard Europe, owes to Public Storage. There is no prepayment penalty. They can pay that off whenever they have the desire to. The repayments will probably not be any more than EUR 10 million to EUR 15 million in any one year until the Wells Fargo loan has been repaid. Wells Fargo is the one who provided the new loan to them.

Operator

[Operator Instructions] Your next question comes from the line of Tayo Okusanya of Jefferies.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

My questions have actually been asked.

Operator

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

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

What portion of the preferreds outstanding are actually callable in 2012 and what's your appetite to continue doing that?

John Reyes

We have quite a bit that are still callable, Paula. Roughly about almost $1 billion of preferreds are still callable, and that's after we've called the 3 series that I mentioned in my prepared remarks. To the extent that coupons continue to be driven down or stay low, we will continue to try to refinance some preferreds. We do have a preferred, that although not callable yet, will be callable in July. The $172 million at 7% and all other things being equal, we expect to call that preferred if we can continue to issue preferreds at the levels we've just been doing.

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

And on the pending acquisition, are those assets stabilized or is there some lease-up opportunity? And could you just discuss the asset quality? Do they need any investment capital?

Ronald L. Havner

Paula, this is Ron. No, they're not stabilized. I think the blended occupancy is about 65%, so there's uplift on occupancy there. And then I think we're going to -- assuming we consummate the transaction, put in about $1 million, $1.5 million of capital into the property.

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division

And then just finally, you said that 2012 would be the year of the rate. What do you think the biggest contributor to revenue growth will be this year? Will it be increases on existing customers or higher street rents?

Ronald L. Havner

It could be -- I touched on -- someone else asked the question, Paula. Street rates, higher street rates take a long time to kind of roll through the portfolio. The rental rate increases obviously have a more immediate impact. Promotional discounts and changing promotional discounts have a very immediate impact in terms of revenue growth. So we've got all 3 of those, plus we'll get some occupancy uptick this year.

Operator

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

Ross T. Nussbaum - UBS Investment Bank, Research Division

Ron, how much higher do you think market rents need to be for you to start putting some shovels in the ground on new construction?

Ronald L. Havner

Ross, the development is a market-by-market question, so it depends on which market. But I would say at this time, we have no plans for development.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Do you see anybody else in the industry taking a look at that now?

Ronald L. Havner

I think the guys that CubeSmart bought their portfolio from have got a couple of properties under development in New York. I think the boroughs, there are several guys out there developing. There's a couple of guys down in Texas. That's about it. It's pretty light in terms of development activity, and I don't think any of the public companies have any plans for development. I haven't listened to their calls, but I don't think any of them are planning to develop.

Ross T. Nussbaum - UBS Investment Bank, Research Division

When you try to model out and take a look at potential projects, is it just that the yields are just obviously coming out too low at this stage?

Ronald L. Havner

Well, Ross, the development, if you think about development in self-storage, it's not something that you undertake lightly. If you're going to do a development program, you have to get site acquisition people. That takes time for them to find properties. It takes 6 to 9 months to build the properties and 2 to 3 years to lease them up. So if we started development today, it will be 4 to 5 years before you really saw the stabilized income from those development activities. So it's a big decision in terms of undertaking a development program.

Ross T. Nussbaum - UBS Investment Bank, Research Division

That's sort of the basis of my question, it's been, what, a good 5 years really since we've seen any meaningful starts in the self-storage sector. And at some point here, we're going to need more storage in this country. But it sounds like to your comment that you don't necessarily think that there's going to be such a wave of demand that's going to require new supply anytime soon. I'm trying to sort of gauge how development fits into an overall demand outlook for your industry.

Ronald L. Havner

Well, I think if you go back in history over the last decade, most of that new development came from local operators, not from the public companies. While we had some, I think, extra space, had some -- as a percentage of new supply over the last decade, it was a very small fraction of the total new supply coming in the market were from public companies. So you got the local guys who were there, who were able to get very attractive financing either from banks or in the CMBS market. And I don't see that source of financing coming back anytime soon, much different than the apartment guys that have Fannie and Freddie to finance apartments. That simply doesn't exist in the self-storage business, and I've heard nothing to indicate that, that market is coming back anytime soon. So to speak, a great supplier, the local operator, is very capital constrained right now. And so for the industry, it's great in terms of supply, demand. You could see everyone's having a higher demand for their product, better pricing with very little supply on the horizon in the near term. And I would even say, the supply, longer term, it will be challenging to add meaningful new product to the industry.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Okay. I guess, one other question is, as you look at the performance of your company, let's call it the same-store portfolio, heading into the recession and now out of the recession and you compare that to what PS Business Parks have done over the same timeframe, does that cause you to rethink whether or not Public Storage should maintain its investment in PS Business Parks?

Ronald L. Havner

No.

Operator

Your next question is a question from the line of Ki Bin Kim of Macquarie.

Ki Kim

So to follow-up on Ross's question, how about redevelopment? I mean a lot of your assets don't have climate control, maybe appropriately or maybe not, but could you comment on, it's probably much easier to do redevelopment and if you can comment on how much volume there, opportunity there is in your portfolio and what kind of returns those could possibly generate?

Ronald L. Havner

Ki, we're constantly looking at redevelopment on our portfolio. We've been doing that for the last 5 or 7 years. I think on average, we probably put $40 million, $50 million a year into redevelopment a year. It's a nice add-on. I think we break out in the press release or in the Q how much incremental income we're getting from redevelopment, and it's quite a nice source of growth for us. Unfortunately, it's not in the billions. It's in the $50 million to $100 million, if we're really cooking along here. The returns are quite exceptional, well into the double digits as you can imagine because there's no land costs and the incremental costs of building is somewhere between $30 and $50 a foot. The great thing is just not enough of it and it's also very low risk because you know what the market is, what the rental rates are for the space that you're redoing.

Ki Kim

So can we expect that to maybe even go $40 million to $50 million to $50 million to $100 million?

Ronald L. Havner

We're doing as much as we can, as fast as we can.

Ki Kim

And is that mostly just climate control type of redevelopment projects?

Ronald L. Havner

Climate control adds a little bit. The bigger opportunities take out a land parcel, take out a single story, drive up building and tear it down and go multistory and re-densify the property. That's the bigger -- I don't know if there's a bigger opportunity, but that's the bigger return, bigger investment and where you get more meaningful return on the capital.

Ki Kim

Okay, that's helpful. And just one last quick question. Given your kind of, not just you guys, I guess the whole industry's push on streets rates and sending out rent increase letters, has the average customer profile changed at all? And maybe if you could -- probably some color on maybe the average of length of stay?

Ronald L. Havner

Well, Ki, in terms of churn rate, we haven't seen an uptick in that, discernible. And as I touched on, at Q4, the percentage of customers in our portfolio greater than the year was the same as it was in 2010. So despite the more aggressive rental rate increases that John touched on for 2011, we haven't seen an erosion of our long-term customer base.

Ki Kim

And what is that percentage of greater than the year?

Ronald L. Havner

56%.

Operator

Your final question comes from the line of Michael Knott of Green Street Advisors.

Michael Knott - Green Street Advisors, Inc., Research Division

Just curious how recent sales transactions sort of measure up to your estimate of replacement cost? Are we still trading at a discount or are we getting closer to replacement cost? And not necessarily just for the deals you've bought, but I'd be happy to hear your commentary on that but also just more broadly.

Ronald L. Havner

Michael, you're baiting me here. I'm going to be diplomatic and just say most of the stuff, well, I know all the stuff we bought in 2011 and what we're looking at in 2012 is below replacement cost. The stuff and the more distressed it is in terms of a bank liquidation or whatever, the farther below replacement cost we'd get. I think some of the well-marketed portfolios, higher quality stuff have been demonstrably above what our estimate would be of replacement cost.

Michael Knott - Green Street Advisors, Inc., Research Division

So on average, any broad brush takeaway or is it just too asset specific and market specific?

Ronald L. Havner

I think it's buyer specific.

Operator

You have a follow-up question from the line of Michael Mueller of JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Just one last one. What's involved in a self-storage redevelopment that's different from what's picked up in CapEx?

David F. Doll

The difference, Mike, in that is that if it's a redevelopment, there's no added square footage. We're improving the infrastructure of the property, climate control. If we do redevelopment, we've added square footage.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. So these are all pretty much expansions when you talk about redevelopment?

David F. Doll

Correct.

Operator

This concludes our question-and-answer session. I would now like to turn the floor back over to Mr. Clem Teng for any closing remarks.

Clemente Teng

I want to thank everybody for attending our conference this morning, and we'll talk to you next quarter. Thanks.

Operator

Thank you. This concludes your conference. You may now disconnect.

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Source: Public Storage's CEO Discusses Q4 2011 Results - Earnings Call Transcript
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