Clem Teng - Investor Relations Ron Havner - CEO John Reyes - CFO David Doll – SVP and President of Real Estate Group.

Gwen Clark - Evercore ISI Smedes Rose - Citigroup Jana Galan - Bank of America Merrill Lynch Ross Nussbaum - UBS Jeremy Metz - UBS Todd Thomas - KeyBanc George Hoglund - Jefferies Michael Mueller - JPMorgan Jason Belcher - Wells Fargo Wes Golladay - RBC Capital Markets.

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 First Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I would now like to turn the conference over to Clem Teng to begin..

Good afternoon, and thank you for joining us for our first quarter earnings call. Here with me today are Ron Havner and John Reyes.

Before we begin, I want to remind those on the call that all statements other than statements of historical facts included in this conference call are forward-looking statements, subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.

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

All forward-looking statements speak only as of today, April 27, 2016, 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 and 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 Web site at www.publicstorage.com. Now, I'll turn the call over to Ron..

Thank you, Clem and welcome everyone. We had another solid quarter here in Q1. So, let's open it up for questions. .

[Operator Instructions] Our first question comes from the line of Gwen Clark with Evercore ISI..

Hi, guys, good afternoon.

So I realize this information will be available on the 10-Q, but since that data won't be out for a few, can you give us some color on the operating performance within your largest metros?.

Glenn, this is John. I can run through some of those. So Los Angeles, which was by far our largest market, revenues were up about 8.2%, San Francisco which was on second -- I'll just give you a top ten. San Francisco was 7.8%, New York 4.6%, Chicago 2.4%, Seattle 8.4%, Washington DC 2.6%, Miami 6%, Dallas was 8.9%, Houston 5.2% and Atlanta 7.8%. .

Thank you and I guess on that note, seems like Chicago and DC were at the definite under performers, can you just talk about what do you think was driving that?.

Well DC has been an underperformer for us for several years actually, we struggled with DC, and I think that’s mostly competition. With respect to Chicago that's more of a recent phenomenon. Don’t really know exactly what's going on in Chicago, it's been a struggle for us throughout the market, so it's not just any particular part of the market.

So I really can't tell, I think we're keeping our occupancy there but we're lacking pricing power. We'll just keep working on that and see if we can improve it soon. .

Okay. .

Gwen, when you get through the queue, I think you will see that actually Chicago's NOI was up almost 11% and that's not due to operating fundamental, that's due to less nodes than last year..

Okay, that is helpful and with that I'll hop back in. Thank you..

Our next question comes from the line of Smedes Rose with Citigroup..

Thanks.

I wanted ask you about your acquisition activity which looks like it's picked up year-to-date and I think is now an access of what you did for the entire year in '15, and I was just curious, ar you seeing more products come to market or are you changing, what you're looking for in some of the acquisitions you're making or is there any -- something that’s driving that increased volume there?.

Smedes, this is Ron. We've not changed our criteria at all, but I would summarize the market for acquisition as more product, lower quality, higher prices. .

More products, higher prices and lower quality.

Yes. .

Okay, but so within all of that, you're still able to find something that you like. .

It's a broad market as a whole, inside of that are some good products, some reasonably priced.

We were able to do some transactions here and there, but historically we intend to do what make sense for us as a franchise, what makes sense for the platform, what make sense on a price per foot, it varies by market and that strategy has not changed, it's consistent, we continue to build out the platform in the markets where we are.

Both submarkets as well as markets in general. So nothing has change in terms of strategy, but we are seeing given the robust pricing, more product coming to market and I would say overall lower quality.

David Doll is here, so David would you have anything to add to that?.

No, I think the only reason we're seeing a little more activity is we've got, looking for some of those one off and off marketed properties that can fill in some of our -- as Ron suggested markets where we're trying to build out scale. .

That's helpful, thanks.

Ron, when you say higher prices, can you maybe just generally just quantify like how much CapEx have declined in the last year or quarter, how are we going to measure it? Just to get a sense of pace of price increases of what folks are asking?.

My guess would be, everyone measures cap rates different Smedes, they include insurance or retail or don’t include certain operating expenses, so it's a little hard to say in terms of the way we underwrite and what we're seeing out there. I'd say 50 to 75 basis points at least.

David?.

1.5 times to 2 times replacement cost..

Great, okay, thank you very much. That's helpful..

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

Thank you.

I was wondering, if you could talk about the decisions to grow the development pipeline and maybe comment on land prices and construction costs?.

Well, the decision to grow the development pipeline, our growth -- to development started about three -- in earnest about three years ago, and we started doing that in part because we couldn't find product and markets or submarkets where we wanted to build out our franchise, build out a platform and two, we saw the continued escalation of prices of acquisitions which previous question I just answered, just kind of comes up bare it has been for the last 12 to 18 months.

So, the pricing on acquisitions wasn’t making sense and then getting new product in markets where we didn't have existing product is rational for the development platform.

And to the teams' credit this quarter we ended with 600 million in the pipeline which is a new record for us and most of that about two thirds of that 350 million will be delivered this year, which is also fantastic. In terms of construction cost let me pass to David. .

So construction costs, across the country there's different markets where we're seeing acceleration of costs mostly due to labor shortage or subcontractor coverage. Markets like the Bay Area, Miami and smaller markets like Phoenix and Denver we're starting to see some pressure on construction costs.

Land prices generally I'd say factor of availability and so in those key markets where availability is becoming more and more difficult, then we begin to focus our efforts on redevelopment and most of those markets we've got a great portfolio that can be redeveloped on our existing real estate.

So the team has to be nimble in terms of where those opportunities exist and how they could execute it..

Thank you and I believe last quarter you identified overall supply maybe about 1,200 plus storage facilities in some stage of development, just curious if you had an update on that number?.

I think that's been pretty close between 800 and 1,000 and that's nothing has really changed, my guess always it's accelerating, so as we go through the year that probably -- number will accelerate, the number of people entertaining development, trying to get their arms around it, or undertaking it continues to grow..

Thank you..

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

Jeremy Metz on with Ross.

John, I was just wondering if you could talk about what you are seeing on the rent front, given the maturity of the portfolio close to max occupancy, it does seem like you guys are still able to get some good traction pushing rents in the market continues to bear it, so any color on street rates where they trended during the quarter and maybe that spread between move in and move outs?.

I'd say that the street rates during the quarter were up about 5%, the take rate on our move in, which are move in were about up 1% during the quarter and they were moving in that rate that were about 4% higher than last year.

The move out rates that were up 5.6% year-over-year and just to give you a flavor of the take rate, the move in rate was about average on the per unit basis about $124 versus the move out rate of about $135, which is about probably $11 difference there. And that compares to last year at about $119 move in versus $128 move out..

That's pretty similar, and then just one on the -- you had a pretty good bump on the late charges in admin fee this quarter, I was just wondering is that more late fee driven and assuming you'd be even be willing to provide it, are you able to say what kind of percentage of the portfolio is in [indiscernible] at this point has that increased at all lately?.

With respect to delinquencies, we're close to or at record low delinquencies. So the uptick -- it's late fees and admin fees, the late fees haven't changed, it's all in admin fees, we've bumped those a little bit last year. And so on a year-over-year basis they're higher, plus as John noted you got about 1% - 1.5% increase in move ins..

Okay, and I think Ross has one quick one..

Your occupancy in March was flat year-over-year, do you have an update on where you are here at the end of April?.

I have an update, yes as of yesterday we were up about 11 basis points..

And then Ron, given your comments on where the transaction market is with lower quality and higher pricing.

Have you thought about putting some of your "lower" quality noncore smaller market assets up for sale and using that as a source of development funding?.

Well we have thought about that Ross, we continue to think about that. In terms of needing that as capital for development, we have plenty of firepower here on the balance sheet to undertake our development program.

Keep in mind $300 million to $400 million, call $350 million a year of retained cash flow goes a long ways towards funding the development program. That's what our spin will be this year, so it's basically -- this level of development we're basically taking our retained cash flow and underwriting the development program.

To your first question yes we are -- we continue to look at maybe peeling off some markets where we don't want to grow in and we don't have much of a presence..

[Operator Instructions] Our next question comes from the line of Todd Thomas with KeyBanc..

Ron, just following up on new supply curious to get your read over whether there are any markets where you think that there are some real overbuilding taking place that you're watching carefully or were you maybe a little cautious over the next year or so?.

Two markets that come to mind Todd, one is the boroughs in New York, we have -- we don't have anything in the boroughs per say, well we've got one on Long Island and we've got one over in Jersey City but that's it.

But just looking at the sea of ordeals of the other public, our public competitors as well as what we know is going on, the borough seem to have materially above average level of development and high proportion of existing supply coming in, the other is Denver where we've been told there's 40 to 50 properties on the board or about to be developed in that market, which is a big number for that size of market.

We're developing quite a bit in Dallas, we -- where we are developing North Dallas, we're not seeing a lot of new competitors, we're down in Houston, we've seen some uptick in Houston, but nothing relative to the size, in terms of size and market, nothing from our perspective to be concerned about at this juncture..

And then the lease up cycles for new development say -- they were taking place at a much-much faster pace for quite some time.

Has that changed at all or with some of the new deliveries or -- is absorption taking place at pretty much the same pace?.

We're pretty much ahead across the board in terms of our selling up faster, ahead of pro forma, so that process continues. The fundamentals of the business are great. Our customer acquisition costs were down again this quarter, we've brought in more customers at lower costs than higher rates.

So, the fundamentals of the business continue to be just excellent. And that's playing into fortunately our development platform as well..

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

Just wondering if you could talk about overall operating expenses, in 1Q you guys benefitted from lower snow removable cost, but as far as trends going into the rest of the year, are there are any areas where we could see savings that would keep the cost lower? I mean I would assume you guys won't be expecting a negative, another negative quarter year-over-year costs, where could we see some savings then?.

George, I don't recall what Q2 snow removable cost were last year, I'm sure we had some, it was a pretty tough winter last year, so there maybe some minor positive expense variance on snow or next year but most of the other expenses, as I always say, I would count on 2% to 3% property taxes we've got them running at 4.5%.

We don't see that change much, so if I were modeling I'd model 2% to 3%. .

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

Thanks, good morning guys. So, just a follow up on a previous question, you guys gave April occupancy stance, so I was wondering if you could provide contract rate, what that looks likes in April or moving rates which I really think is more useful..

Ki, we don't usually provide that but I don't think there was any trend different in April than what John mentioned in the first quarter in terms of moving rates and move out rates, and street rates versus take rates..

So, I guess just broader, is this spring leasing season, generally behaving the same way the previous couple of years spring leasing seasons have behaved in terms of you guys being able to push that take in rate or contract rate year-over-year, much higher in the spring time versus winter time?.

Ki, this is John, yes, it is, you seen that sequential push, I think that difficulty for us in Q2 is comps compared to last year where we had an exceptional Q2 last year, that was surprising to us about how much demand came in and our ability to continue to push rates, so we're confident against that but the trend lines are still the same but it is a tougher comp for Q2 this year than we experienced historically.

.

Okay, thank you. .

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

I was wondering, any color on Europe, can you just give us quick rundown of what you're seeing over there?.

Sure, Mike. Europe occupancies for the quarter were 89.8% versus 88.1% so up 1.9%. Realized rents were up 3.1%, so overall rev path growth was 5.2% for the quarter. Expenses were only up 2.8%, so we had 6.7% NOI growth across Europe, so the team is doing a great job over there, every market was up in terms of NOI being led by Sweden at 16.2%.

The laggard was Germany at 0.8%.

Got it and just in terms of investment activity over there, what's going on in terms of development or anything on the acquisition side?.

We opened up three new properties in London in the back half of last year, we've got a couple of more that we're undertaking this year. We're trying to get things started in Berlin. So that's on the development side, nothing at this juncture in terms of acquisitions..

Got it, okay. Thank you..

Our next question comes from the line of Jason Belcher with Wells Fargo. .

If you could give us some of the operating metrics for the assets that you acquired in the quarter, as well as those already acquired so far in Q2, I'd be particularly interested in any color you could share on the occupancy rates in place versus market ramps and cap rates..

Jason, I don't have the occupancies or any of that stuff on the acquisition here with me. They are generally somewhere between 70% and 85% occupied. In terms of price per foot, we acquired was about $110 and $120 a foot, it varies by market. .

Okay, thanks and then just on the preferred you issued in January, I think it was 5.4% coupon, wondering where you think you might issue that now?.

Lower..

Alright, thanks guys. .

Our next question is comes from the line of Wes Golladay with RBC Capital Markets. .

Hey guys, looking at Europe, how are the barriers to entry in that market from a development side, is it difficult to permit finance relative to say a core West Coast market such as San Francisco and Los Angeles?.

London and Paris, first of all those are the big market, I assume we're talking about the major metro centers, London, Paris, Berlin?.

Yes. .

They're just like Los Angeles or San Francisco or Manhattan, I mean, you've got core -- the core markets the inner ring in Paris, downtown near Buckingham Palace is central part of London. First of all you can't get zoning, second of all if piece of land is for sale it's incredible expensive, probably doesn't make sense, so it's equally as tough.

And that the sites we've done in London are -- they've not been easy in terms of getting the zoning. Same challenges that you face here where the markets where you really-really want to be in and there's no competition, it's really hard or there's no zoning..

And then when you go to market such as Europe is your platform -- we always talk about the -- your platform in the U.S.

has been much better than some of the small mom and pops, do you have that same advantage when over to Europe and can you consolidate anything over there?.

You got to keep in mind, in all of Western Europe and again this is best guess statistics, somewhere between 1,500 and 1,800 facilities in all of Western Europe including Great Britain, over half of which are in Great Britain, so the product that's available across the continent is pretty thin, there's not a lot of -- I think in Berlin there's 10 to 12 facilities in all of Berlin.

So, there's not a lot to buy and the product is on an average I'd say much lower quality than U.S. because a lot of that was not purpose built, a lot of it was converted, office, converted garages, converted industrial buildings, and it takes a variety of shapes and sizes.

So, not a lot of purpose built product in Europe, not a lot of product to even buy and most surprised there's over in Great Britain and a lot of its outside London..

And there appear to be no further questions at this time. I'd like to turn the floor back over to Clem Teng for any additional or closing remarks..

Thank you for participating on our call and we look forward to speaking to you next quarter. Have a good afternoon..

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