Clemente Teng – IR Ron Havner – Chairman, President and CEO John Reyes – SVP and CFO.

Ki Bin Kim – SunTrust Robinson Humphrey Jeremy Metz – UBS Christy McElroy – Citigroup Jeff Spector – Bank of America Vikram Malhotra – Morgan Stanley Jordan Sadler – Keybanc Capital Markets Michael Mueller – JP Morgan Ryan Burke – Green Street Advisors Omotayo Okusanya – Jefferies & Co Ki Bin Kim – Sun Trust Robinson Humphrey Michael Bilerman – Citigroup.

Good afternoon. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Public Storage’s Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session.

(Operator Instructions) Thank you. I would now like to turn the call over to Clem Teng. Please go ahead..

Good morning, and thank you for joining us for our second 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.

Those risks and other factors that could adversely affect our business and future results are described in today’s earnings press release and in our reports filed with the SEC.

All forward-looking statements speak only as of today, August 1, 2014, and we assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Reconciliation to GAAP or the non-GAAP financial measures we are providing on this call is included in our earnings press release.

You can find our press release, SEC reports and audio webcast replay of this conference call on our website at www.publicstorage.com. I’ll turn the call over to Ron..

Thank you, Clem, and welcome everyone. We had another solid quarter. Our fundamentals to the self-storage business continue to be excellent. With that operator, we’ll open it up for questions..

(Operator Instructions) Our first question comes from the line of Ki Bin Kim with SunTrust..

Good morning guys. Could you just talk a little bit more about kind of your future longer term capital deployment plans, especially as it relates to development, you have about $240 million today.

What is the longer term dollar value that you feel comfortable with?.

Well Ki, this is Ron. Is your question, how big do we expect the pipeline to grow in terms of – because it was like, I think $1,590 [ph] million to being the year and it’s now $240 million.

Is that your question?.

Yes..

Yes. Well, I think we’re trying to get it up to about $300 million to $350 million. Keep in mind that most of our projects is $7 million to $8 million. And it takes – we have to go through three or four properties to get one kind of into the pipeline. So that’s a lot of projects when you get to $300 million, $350 million.

If we get there and feel good about it, we could take it to $400 million. That would be fine if the market is there and our processes are in place to achieve that level of production..

And just a follow-up to that. So let’s say, call it $350 million, how much visibility do you have in terms of, let’s say next year when you try and start $350 million or get to that in terms of which market can support it, should you do it, those type of questions..

Well, we have a number of people in the development group that are looking at sites in certain identified key markets.

And so part of our development activities is first being able to find the appropriate sites, get the right zoning and being able to develop and conceive a project that actually kind of makes the economic sense to us, both in terms of rate of return but also where it fits into the portfolio..

Okay, thank you..

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

Hi, good morning. Jeremy Metz on with Ross. Can you just talk about where your net rents, net of discounts where they were from move-ins this quarter versus move-outs, and kind of how that spread compared to the last year.

Are they getting wider or narrowing?.

Yes, Jeremy, this is John. So move-ins were coming in at a monthly rate of about $121.97 on average. The move-outs were leaving at an average rate of about $124. So there is a net negative spread there of about $2.03. On the move-in side in terms of the discount side, roughly – we gave away roughly $20 million of discounts.

That was the same – this is during the quarter and that was the same as last year. For the last year in the same quarter, move-ins were coming in at $114.20 and they were vacating at $119.70. So that was a negative spread of $5.50. So the spreads obviously narrowed, but nonetheless it’s still a negative spread, rent roll down..

Okay. And then just in terms of the discount, for the 5.3% revenue growth this quarter that you’ve put out.

Just how much of that was your ability to squeeze discounts, and as you look out at the back half of this year, can you squeeze discounts even more from here or is that kind of leveling off at this point?.

Jeremy, the discounts were about $20 million in both quarters for the second quarter of this year. Notwithstanding the fact we’re actually giving away, and in terms of the absolute number less discounts, the dollar value of those discounts is more because the rental rates are higher.

Folks are moving in at about 7% higher rates during the quarter than they were last year. So even though, notwithstanding the fact again that we gave away less discounts on a per move-in, the absolute dollars was flat because of the rental rate being up 7%.

Going forward, I think the discounts would probably be fairly consistent with last year, probably pretty flat..

Okay. Thank you..

Our next question comes from the line of Christy McElroy with Citigroup..

Just sort of a follow-up on Ki Bin’s question. Ron, you’ve been rebuilding your ground-up development platform for a couple of years now.

Now that you’re a year or two into doing projects, are the returns looking better or worse than when you originally fed out, are you thinking about any changes to the process or in doing projects on balance sheet versus with the partner? Some of your REIT peers have been increasingly buying those deals to get some development exposure.

Just hoping to get your current thoughts of your approach development to that?.

That’s a lot of questions, Christy. Our development program, I would say we initiated it probably two, 2.5 years ago. It continues to grow. The team is not yet quite complete. Our processes are somewhat evolving, and what we’re finding in the market, we’re having to adapt to different things in the marketplace.

In terms of returns, and are we achieving the yields that we thought. In our business it takes six months to find a site, six to 12 months to build it, and generally two to three years to fill it.

So it would be a couple of years before we absolutely know whether we achieved our targeted yields, but so far most of the properties are filling up faster than we anticipated, although in some cases lower than pro forma risk as we trying to accelerate the fill up, where we’re building it pretty close to on-time, pretty close to on-budge.

We haven’t had any big hiccups. So I am feeling really good about our development activities at this juncture. In terms of other people buying CFOs [ph] or partially completed properties, I think we’ve mentioned before that we anticipated that.

Some have been rather vocal about not wanting the development program, but you can do development in variety of ways and one of them is just buy CFO [ph] building..

And how do you think about doing projects with a partner versus on your own?.

We’re fine with that. It’s really a cost to capital analysis..

Okay. Thank you..

Our next question comes from the line of Jeff Spector with Bank of America..

Good afternoon. Thanks for the time.

Can you comment on supply tracking in your markets today versus, let’s say, a year ago?.

Jeff, we don’t have any stats here by market. I can’t tell you – as I said before that development is much more of a conversation today. There are people developing in a number of markets. Is it significant relative to the existing base? No. But it’s accelerating, and I would expect it to continue to accelerate over the next year or two..

Okay, thanks Ron. And then quick question on occupancy, yet another nice quarter of occupancy growth.

How are you thinking about occupancy against how high you can get it versus pushing rents? What are your latest thoughts there on that balance?.

Well, we’re going to continue to push rents as we’ve talked about. In terms of occupancy, we mentioned that it’s going to get tougher and tougher to move the occupancy spread, which you see that during the quarter that spread has narrowed quite a bit. It’s gapped out a little bit by the end of July.

What I am hoping to try to accomplish with our portfolio is to see if during the fourth quarter, we can gap it out a little bit more by maybe doing a little more advertising on television and seeing if we can get some traction and flatten out the occupancy curve during the first – the fourth quarter and into the first quarter of 2015..

Okay, thank you..

Our next question comes from the line of Vikram Malhotra with Morgan Stanley..

Thanks. I want to just touch on Europe, you’ve had a couple of quarters of improving occupancy.

Just want to get a sense of what you’re seeing there and could we expect at some point rents to start increasing there as well?.

Well, we’ve gotten some positive traction here in Europe starting in Q3 of last year where we changed our pricing strategy there and done some pretty aggressive promotional programs. And that seems to have worked both in the Q4 last year and into this year, which you see reflected in the occupancy is up about 7% year-over-year.

And that’s pretty much across the entire platform. Even Holland is up from 74.2% from 69.2% last year. At this juncture – and we’re doing that at the expense of rolling down rents. So if you look at the table, you see that the in-place rents are rolling down.

I would expect that program to continue for the foreseeable future until we get the portfolio at a much higher stabilized occupancy levels, say in the low 90s and drive volumes with promotional discounts..

Okay. Thanks guys..

Our next question comes from the line of Todd Thomas with Keybanc Capital Markets..

It’s Jordan Sadler with Todd. 95% occupancy, stunning. How is it even possible? I guess I’m just trying to think of the frictional vacancy and just maybe I don’t think if I asked you guys if you could get the 95% occupancy six months ago even or a year ago, that would have said, yes, no problem.

Are you doing anything differently, anything you could sort of shed some light on?.

Jordan, this is Ron. I’ll analogize this to flying a plane. It’s one thing to take a low level plane and kind of operate at 85. It’s another for a jet at 90. And when you get into the 95, think of it more as like an astronaut.

So you’ve got to operate a little differently and your inventory systems has to be little different, your pricing has to be a little different. And so we continue to push it here. And if we can get it to 96%, we love to do that. Right now as John said, we’re trying to take some of the seasonality out of the business, both in Q1 and Q4 of this year.

And I think that will be a good achievement in and of itself..

And where were you at the end of July?.

We were at 94.8%..

Okay..

About at the same level essentially. We do expect – I mean as we get into the back half of the year, you lose a little bit but try to retain as much as possible..

Well after June, Jordan – and you know this because you’re following the industry now for a long time. After June, it’s net move-out for the balance of the year. So in July, we had net move-outs of 4,200 customers versus about 6,000 last year. So while our occupancy was 94.8% that’s up from 94.4% in the prior year.

So we do have better in July, both on the move-ins and the move-outside than we did last year..

Thank you. And then Just a quick follow-up. Little bigger picture on the aggregators that are out there. You guys have had the larger players in the space, public players have this big competitive advantage of teams.

I am just curious as to your thoughts in terms of the ability of these aggregators out there to sort of help out the little guys and sort of close the gap, if you will, in terms of that relative advantage.

You think that’s a year out, two years out or never?.

Jordan, this is John. I think the aggregators had in fact helped the little guys improve probably on their occupancies and their ability to get visibility on the internet. So I think – I don’t know, whether it’s economically benefit to the little guys, I think it has benefited their ability to get with the volumes. So I think it’s a positive for them.

For us, we would rather than not be there than be there, all things being equal, but they are there and we deal with them and we compete with them when we’re bidding for search terms, which again I’d rather not be competing with them, but there we have to compete with them..

Thank you..

Our next question comes from the line of Michael Mueller with JP Morgan..

Yes, hi.

I was wondering if you can comment on the properties you bought, not necessarily in second quarter but in July, that $240 million, and where is occupancy, where did they come from, etcetera?.

Well, they were principally one portfolio, Mike. And they were in, let’s see, in D.C., Orlando, Tampa, Sarasota, Fort Myers, and then various other submarkets across Florida and New Jersey and North Carolina.

I think their occupancy at the end of July was about 92% and that ranged from a high of, let’s see, 96.9% for one property down to one that was at 68.8%. So this would kind of validate something I have said for a long time is if you have good properties and a good manager, you’ll do just fine in this business.

These properties were operated with a variety of different names, no internet marketing, no brand name, and yet we had a number of properties that 96% plus occupancy. So really good quality real estate..

I mean it seems like when you typically buy stuff in the past, the occupancy is lower and that’s part of the play.

Occupancy is clearly higher on this one, it’s because there is something just in terms of rate that’s compelling or something else?.

Well, Florida [ph] – so my guess is we’ll probably end up doing a little better on expenses, maybe a little better on pricing and there is some properties in here with some occupancy opportunities as well..

Okay, thanks..

(Operator Instructions) Our next question comes from the line of Ryan Burke with Green Street Advisors..

Thank you. A follow-up Jordan’s question earlier.

Can you just provide some more detail on how operating a property that is 95% occupied might be fundamentally different in some ways than operating properties let’s say 85% or below that?.

Ryan, this is Ron. There is a variety of things and I’d rather not do that, because from a competitive standpoint this is really not the forum to get into that kind of discussion..

Okay, understood. Thank you. Second question, you achieved a pretty nice increase in the yields on your 2012 acquisition bucket year-over-year.

It’s been a fantastic operating environment over that time period, both new supply and the affect of aggregators that we mentioned on the call so far, but looking forward from where we stand right now, stay over the two or three years, is there anything that you see that might fundamentally change in the sector, whether it be for better or worse?.

I’m not sure – in terms of two to three years, that’s a long time, and I am not really capable of forecasting out that far. I would say right now the fundamentals are very good. I think the – I don’t know if all the public companies have reported, but certainly the ones that have, have demonstrated strong fundamentals.

Certainly our same store properties demonstrates strong fundamental. There is development going on in the marketplace. We’re developing, other people are developing. So supply is on the uptick. So when you kind of look at the big picture of the industry from where it was four years ago, rates are higher, occupancy is higher and development is starting.

So kind of the risk of the industry is probably a little greater today than it was four years ago, but I think we’ve probably have at least another year or two of great fundamentals for this business..

Great. Thank you..

Our next question comes from the line of Omotayo Okusanya with Jefferies..

Yes, good afternoon. Just two quick questions from me. The first one just along the line of the aggregators that are now moving into the sector.

Just wondering, does it make sense – again as you guys being the largest player in the market to try to take on that rule or kind of build up a third-party asset management business like some of your peers, or when you look at the economics of that business, you just don’t think it’s worth it?.

Tayo, this is Ron. I think one of the really distinguishing features of our Public Storage vis-à-vis the other operators and the aggregators is branding. We get a fair amount of our – 70% of our searches are organic. That means someone is punching in Public Storage, and so we don’t pay for that.

And I am pretty confident no one is even close to that number in terms of organic searches. And when 70% or 80% of the business is coming through the web and another 70% or 80% of that is organic for us, we are just in a much different place than the other operators in the industry that really don’t have a brand name..

Okay. All right, that’s helpful.

And then the second question is with the ramp-up on the ground-up development, just curious if that’s a commentary on you feeling less bullish on the acquisition side of the business, or you really kind of see good opportunities for external growth both from development and acquisitions?.

The second..

Okay, the second. Great. Thank you very much. Great quarter..

Thank you..

Our next question comes from the line of Ki Bin Kim with Suntrust..

Thank you. Just a couple of quick follow-ups.

Could you give the – you guys typically give the comp promotions stat, what was in the second quarter in terms of number of customers receiving a promotion? And I guess you typically give it in percentage terms, the decline in the amount of promotion dollars?.

Ki, I think – this is just off the top of my head. I think we gave away about roughly 65% of our move-ins received some sort of a promotion. And remember our promotions could be 50% off the first month or a $1 for the first month. And then last year I think it was roughly around 70-ish or something like that..

Dollar amount, Ki, John mentioned earlier is about the same, $20 million to $20 million..

Okay. And….

But the rates were up 7% so that would tell you – rates were up 7% on that, that the number of customers must be down where the dollar – the percent of actual dollars we’re giving away in terms of 50% versus the dollar would be down 7% to offset that..

And just second question. Your payroll costs declined 4% on your same store portfolio.

Just curious what you did there?.

We’ve done some things in terms of labor management to help improve the productivity of field operations..

So which is basically less hours to pay for?.

Fewer hours, yes..

Yes. Okay, thank you..

Our next question comes from the line of Todd Thomas with Keybanc Capital Markets..

Hi, it’s Jordan again. I just wanted to come back to the acquisition question. It sounds like there is some opportunities.

With Europe turning around as sharply as it is now operationally, is that on the radar again, maybe views on sort of incremental investment there?.

Yes, Jordan, I wish there were more acquisition opportunities in Europe of the products that we like. It’s pretty slim pick-ins in large measure because the industry size over there is far smaller than the U.S. Recall, Europe has probably 1,500 facilities, and I think 800 or 900 of them are in Great Britain.

In the Great Britain, we’re not really interested in too much product outside of the London and the M25. And there is a lot of product outside there in kind of country-side that we have no interest to it. When you get into continent, there is not a lot of property portfolios that are interest to us. Couple and we’re in contact with those people.

If we could do something we probably do that especially since we’ve kind of got the finances in the balance sheet in Europe fixed. My longer term expectation is that in Europe it’s more of a development play. And so we’re looking to undertake some development there, mainly in London..

So you’ve started to invest in the development platform in London again?.

Yes..

Okay. Thank you..

Thank you, Jordan..

Our next question comes from the line of Christy McElroy with Citigroup..

Yes, it’s Michael Bilerman. I just had a follow-up.

In terms of the occupancy, what’s that standard? You have 2,000 facilities, how clustered are those around the 95%? So I don’t know if you can maybe put them into some groupings in terms of – there are certain amount of facilities that are running much higher that, call it 97%, 98% or even up the full which is kind of nutty, but maybe you do have some.

And then how far down to go and what that bucket is?.

Hi Jordan, this is John..

It’s Bilerman..

Sorry Michael..

I used to work with Jordan but….

I am sorry. We do have some properties that are highly occupied. There is probably one in there that’s 99% and there may even be one at the 100% occupied and we’ve seen that in our portfolio for our same store properties, but I would say the bulk of them are clustered.

If you did like a bell curve, it would be very tight bell curve right around that 95%. Just the odds are it is probably nothing below – in the same store below 85%, because we would have done something with that property with pricing and promotion to try to push it back up real quick. So it is a fairly tight kind of bell curve around the 95%..

And then as we think about the acquisitions that you did last year, I think it was north of over a $1 billion. And I can remember last year we talked about yields, and Ron, I think you said it was 0% to 8%.

I am curious now as those acquisitions have been under your belt for a little while, what that current yield is and where ultimately can go as we look at the ‘15 because arguably that’s a nice piece of your growth platform?.

Yes. Michael for the 2013 acquisitions for the six months, the yield was 5.1%, excluding merchandize and tenant insurance. And what it will be next year, I’m not sure, but I’m pretty confident it’s going to be higher..

Thank you..

And that appears to be your final question. I would now like to turn the floor back over to Mr. Clem Teng for any additional or closing remarks..

We appreciate everybody’s participation this morning, and we will talk to you next quarter. Thank you..

Thank you. This concludes today’s conference call. You may now disconnect..