Public Storage (PSA) Q1 2011 Earnings Report, Transcript and Summary

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 2011 Earnings Conference Call. [Operator Instructions] Mr. Teng, you may begin your conference.

Good morning, and thank you for joining us for our first 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, May 6, 2011, 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 could find our press release, SEC reports and audio webcast replay of this conference call on our website at www.publicstorage.com. In Q1, we reviewed our Same Store pool and adjusted the composition to include properties we have operated for the last 3 years at a stabilized occupancy level. For U.S. operations, we added a net 6 properties to the Same Store pool, adjusting the comparable total to 1,931 properties. For Shurgard Europe, with the acquisition of our joint venture partner's interest, we added 60 properties to the Same Store pool, adjusting the comparable total to 151 properties. This leaves a total of 158 properties or 10.5 million square feet that have been recently acquired, redeveloped or developed that are not stabilized. Now, I'll turn the call over to John Reyes.

Thank you, Clem. As outlined in our press release, our first quarter core FFO per share was $1.28 compared to $1.15 last year, an 11% increase. Four items primarily drove this growth. First, our Same Store net operating income increased by 5.4% or approximately $12 million, representing $0.07 per share. Second, we added $0.04 per share from redeeming preferred and fixed-rate securities last year. Third, properties acquired in 2010 and the first quarter of 2011 added another $0.03 per share. Fourth, our investment in Shurgard Europe added $0.01 per share. These 4 items were partially offset by higher G&A costs of $0.02 per share. Our Same Store net operating income benefited from higher revenues of 3.4%, along with flat operating expenses. Higher property taxes and payroll expenses were offset by lower advertising and R&M expenses, primarily due to lower media and snow removal costs. Operating expenses include indirect costs, such as our information technology platform, Web-based marketing, revenue management, HR and training and all supervisory salaries. Our G&A expense was $14 million or $4 million higher than last year due to higher share-based compensation. We expect G&A expense for the remainder of 2011 will be $30 million to $36 million. We have recently completed 3 capital transactions. First, we paid off a $103 million, 7 3/4% unsecured note, having an effective interest rate of 5.7% for accounting purposes. Second, we issued a total of 375 million of Series Q preferred shares, with an annual rate of 6.5%. And third, we will redeem $350 million of our 7 1/4% preferred shares. There will be in EITF D-42 charge associated with the redemption of approximately $11 million or $0.06 per share during the second quarter. As previously announced, Shurgard Europe acquired the remaining 80% interest in 2 joint ventures that own 72 properties for $238 million. The JVs have $280 million of debt, with an average interest rate of 4%. The transaction was funded as a dollar-denominated loan by Public Storage. Our partner in Shurgard Europe is expected to fund its proportional interest during the second quarter. We increased our quarterly dividend to $0.95 per share, a 19% increase. Our consistent, long-term dividend policy has been to distribute only our taxable income. Taxable income attributable to our common shareholders has increased primarily due to lower tax depreciation and improved property operations. With that, I will now turn it over to Ron.

Thank you, John. During the quarter, we benefited from higher occupancy and better pricing. We added about 20,000 net customers. We ended the quarter with occupancy of 90.6%, increasing the year-over-year spread to 1.7%, up from 1.5% in December. Asking or street rates were also higher. Same Store revenue per available foot grew by 3% compared to 2% in Q4. At the end of April, occupancy, in place rents and asking rents were all higher than the same period last year. We are well positioned going into Q2. All of our top 20 U.S. markets achieved positive year-over-year revenue growth in the first quarter. The northeastern markets once again led the country and grew by about 6%. Los Angeles, our largest market, grew by 0.6% compared to 0.2% in Q4. The southeastern markets, led by Florida and Georgia, grew by 3.4%, up from 2.6% in Q4. Our net customer acquisition costs were lower primarily due to higher move-in volume and lower marketing costs, partially offset by higher promotional discounts. We expect our second quarter media spend to be about $2 million lower than last year. Moving to our European operations, our Same Stores had top line growth of 1.8%, resulting from higher realized rents of 1.9%, offset by lower occupancy. We expect modest revenue growth for the balance of the year. Operating expenses were slightly higher by 1.3%, resulting in NOI growth of 2.1%. Five of the 7 markets had positive NOI growth for the quarter. With respect to acquisitions, we closed on 5 properties for approximately $20 million, as well as the leasehold interest for $7 million. We are under contract to acquire 2 additional properties for $28 million. In summary, occupancies are higher, asking rents are higher, in place rents are higher, share-based compensation expense is higher due to higher revenue. We deployed nearly $400 million of capital during the quarter, primarily in Europe. We refinanced $350 million of preferred at lower rates and we increased our common dividend by 19%. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Eric Wolfe with Citi.

Bilerman here with Eric. Ron, just in terms of the dividend and sort of payout ratio, and I think you talked about the lower depreciation and the higher earnings out of the core portfolio. But it would seem also that just the process of redeeming the preferreds has had an impact on the percentage of earnings to common. So that would have been a big effect. And the reality is your payout ratio, and you've had this pretty disciplined policy of just paying out the minimum but because the minimum is growing, the payout ratio has also risen from the 40s up to the 70s in terms of free cash flow. And I'm just wondering how you sort of think about retaining less cash flow and paying it more out in dividends.

Well, it's really just a function of the taxable income. And as you kind of articulated in your question, the taxable income rises, and we have to increase the dividend. That's been our policy for 20-plus years to the extent that we find creative ways to shelter the income, we do that. The 2 big changes over the last 3 or 4 years are the tax benefits associated with the Shurgard Merger, which was a taxable merger, have started to burn off. So that's reducing tax depreciation combined with, as you pointed out, redemption of a lot of preferreds -- repurchase actually of a lot of preferreds at big discounts in '08, '09 and the redemption of the equity stock in Q1 of last year. So you put all those things together and the dividend has to rise. It's not -- we don't have a targeted payout ratio. It's simply a function of taxable income.

Right, but I'm just saying about the perspective, as you think about the balance sheet today, one of the, I guess, drawbacks of what's been happening is the fact that you have less cash that you can -- less free cash flow that you're keeping in the cookie and you have to distribute it out to shareholders. But I'm just wondering whether that's -- when you look at that, your payout ratio's going to be 75% versus 40% a few years ago and how does that think about that from investing and things like that.

Well, we have plenty of access to capital to grow the company. I think our preferred capacity is well in excess of $2 billion. We're still retaining between $200 million and $300 million of capital during the year. So from an ability to source capital or those kinds of things, if that's kind of your question, we have plenty of firepower in that regard.

Your next question comes from the line of Christine McElroy with UBS.

Can you discuss what ultimately led the Shurgard Europe JV partners to sell their 80% JV interest? I know they've been reluctant for a long time and shot in the dark, but can you disclose the cap rate on the transaction?

Christy, I would say really what changed in -- the key catalyst for us to consummate that transaction is change the management team at the joint venture partner and some changes in strategy on their part, which made this really probably a non-core asset for them on a go-forward basis. But really, the people involved on the other side of the table. As you know, we've been working on this since we acquired Shurgard in 2006. I'm a little embarrassed that it took this long to get it done, but we're happy with the transaction. In terms of yield, if you look at the trailing numbers, I think on an unleveraged basis, it's somewhere between 7.5% and 8%. And on a leverage basis, as John pointed out, there's debt in there at about 4%. On a leverage basis, it's just north of 12%.

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

Ron, on the question on rent growth, I mean, clearly you guys are pushing rents and occupancy's holding. You mentioned the spread year-over-year widening out. But can you give us some sense of how your comfort level in terms of what sort of rate increases you're anticipating going forward, and I guess just balancing that, sort of maintaining existing customers versus the turnover and potential having to do more of the one-month rate.

Jay, this is John. We have been sending out rental rate increase letters to our existing tenants. I think I mentioned before we plan on starting earlier this year, in terms of sending them out, and we plan on sending more out. So this year, we did start in February, and we've continued to send them out, although the bulk of the letters didn't really go out until the May and June timeframe. So far as a result, the increases that we're setting are somewhere in the range of about 8.5% on average and we are seeing just a slight uptick in move-out volumes from those folks. But we're not alarmed by the increase, and we were expecting some sort of increase. So far, we're pretty comfortable with what we're seeing. But again, the bulk of the letters are just really starting to get out to our existing tenant base. We're about halfway through sending letters out. So about half of them have gone out and the other half will be out by the end of probably July.

And what rate increases are you looking for in Southern California?

Southern California, they're coming in probably about the same, 8%, 8.5%.

Your next question comes from the line of David Harris with Gleacher & Company. David Harris - Gleacher & Company, Inc.: If we think about what we've heard from most of the other companies, is the animal spirits seem to be rising on development. As we look at the landscape today, Ron, are you any more enthusiastic about development prospects compared to deploying capital on acquisitions?

At this juncture, we're not really focusing on development, although I will tell you there's been some properties traded in some markets where we're getting pricing that might rationalize development. So I would say longer term, unfortunately, pricing of acquisitions has come back rather robust and my guess, is sometime over the next year or 2, you'll see some people start development. David Harris - Gleacher & Company, Inc.: Including you?

It's not on our radar right now.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital.

I'm here with Todd Thomas [ph]. One, I was just hoping to get some flavor for street rates relative to in place, John. And then maybe second, just to get an update on where we were in April, if I missed it.

Jordan, April, the street rates were higher than last year. The in place rents were higher than last year and the occupancy was higher than last year.

What did occupancies do in April? Did you say?

Occupancies were at 91.3% versus 89.9%.

So despite pushing rate, it doesn't seem like you're getting a tremendous amount of pushback. I know, John, you said that you saw a slight uptick in move-outs. But it seems like occupancy's still trending even higher and it's effectively full. So what's sort of -- do you keep pushing harder? What's sort of the solution?

No, we're pushing hard on our existing tenants. I think we've talked about trying to be more aggressive with our existing tenants and keep the rent, the street rates in check to backfill any degradation in the length of stay by the long-term tenants who are receiving rental rate increase letters. But as we move forward, obviously, if those tenants don't move out at an accelerated rate and move-ins continue to happen, I mean certainly, we'll start being a little more aggressive on the street rate then or turning off promotional discounts. But we're not quite there yet.

Jordan, the other thing that I made in my comments is that we're dialing down the media spend in Q2 by about $2 million or so. So we're modulating the promotional discounts and the media spending with the street rates and the rental rate increases.

Okay. I guess that makes sense. But the street rates relative to in place today are where?

Higher.

Materially, marginally?

They're kind of marginally but Jordan, the increase -- the year-over-year spread this year versus last year has widened. So we're in a better position today than we were last year. In fact, last year we were still in somewhat of a rent roll-down stage whereas this year, we're not.

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

If you could categorize where the demand is coming from for your product, how much would you say is coming from the homeownership rate going from 69% to roughly 66%? It seems like that decrease is commensurate with the amount of occupancy gains you've had since the bottom of the recession. If you just give a little more color on that.

Well, Ki, one of the great things about our product type is we serve a wide variety of customers, both homeowners and renters. I think there's been some analysis done over the years of how self-storage rents generally trend with apartments and the couple of apartment companies that I've listened to or read their earnings, the markets where they're strong, we seem to be strong as well. Have we've correlated directly to home ownership, no. Across the platform? No. Every market for the quarter was up from Los Angeles to Northern Virginia. Northern Virginia was up 6.3%. Detroit, of all places, was up 6.1% for the quarter. New York, 6%, Philly, 5.7%. So it's really across the platform where we're seeing higher occupancies and higher rates.

Is there any color you can give on where the incremental demand is coming from?

No. Other than -- generally, the economy has improved slightly so people are doing more things and it's across a wide variety of users.

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

Ron, you talked about acquisition market coming back pretty strongly. Can you talk about the cap rates, how they trended over the last year or so? And if you can break it out into the top markets and the sort of bottom markets?

Well, there has been -- I would say there's been cap rate compression over the last 12 months. If you recall, last year, I believe it was in the second quarter, it was on this call but in the second quarter that we announced the acquisition of 35, 40 properties here in Los Angeles, which was really the beginning of acquisition activity really starting in the business. This quarter, there was I think the other public companies announced over $300 million of deals, and there's a number of private investors that have also taken down some portfolio. So what we're seeing is a definite uptick in pricing on several of those transactions, we were simply outbid. People were more aggressive in terms of how they were bidding for the product. If you look across the country, and I can't go through by market, but I'll tell you, there's a little bit of a tale of 2 cities in the acquisitions. On the primary markets, whether it's Los Angeles and New York or Florida, Miami or San Francisco, you have people being very aggressive on pricing and going after product and I would say probably going down the quality spectrum in terms of what they're buying. And then in the secondary markets, maybe like Birmingham, Alabama, where you can get product at 50% replacement cost and double-digit yields. So there's a big gap between the primary markets and the secondary markets. Did that answer your question?

Yes. So just comparing it with the 35 to 40 properties portfolio which you acquired, if those were in like sort of the high 7s, I mean, would you say like a 50 bps compression or any sort of compression which you can talk about in terms of. . .

On those properties -- my guess, is if those properties were to come to market today, we'd have 100, 150 basis points yield compression.

[Operator Instructions] Your next question comes from the line of Paula Poskon of Robert W. Baird. Paula Poskon - Robert W. Baird & Co. Incorporated: So Ron, one of your peers described the product on the market as enough to go around for everybody, which feels to me quite a difference from just a few months ago where we continued to hear duress [ph] of product. Would you agree with that characterization?

Well, on the previous question, if you look at the volume in this quarter, either deals consummated or announced, it's up dramatically from last year at the same time. What unfolds the rest of the year, I can't tell you. In terms of enough for everyone, well, I'd like to buy $2 billion worth, so I'm not sure there's enough for everyone. But that will be a function of the pricing and the quality of the product coming to market. But it's certainly dramatically up from where it was last year or even Q4. Does that answer your question? Paula Poskon - Robert W. Baird & Co. Incorporated: It does.

Your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller - JP Morgan Chase & Co: You guys obviously, had the original loan out to Shurgard Europe and you and your partner financed the buyout of the JV. I was just wondering, can you talk a little bit about the financing environment over there for Europe? Is it you're putting capital out because you've got the excess cash and it's a good use of cash rather than having it sit there? Or are the terms over there, either the proceeds you can get or the rates just not all that attractive still?

Mike, this is John. Well, the equity markets for a company like Shurgard Europe who have to obviously do an IPO, it's probably really not there for them right now. So that's out of the question in our mind. The banks syndicated market is pretty much closed. You could probably get some out of that but maybe a couple of hundred million. But probably not much more than $200 million there. So the market that is open where Shurgard Europe could look into would be the Eurobond or the high-yield market. But that would take some time for Shurgard Europe because Shurgard Europe would need to get rated and obviously, get probably an investment grade rating. So that would take a number of months for them to do that. So for the most part, there's not a ton of available capital that's available to Shurgard Europe at the moment, that may change. And in the meantime, Public Storage has the wherewithal to help them through and fund their activities, which we've obviously done. And we'll continue to look at the capital markets there and when they do open up, we'll evaluate what's the best course of action for Shurgard Europe.

Your next question comes from the line of Todd Stender with Wells Fargo Securities.

Could you provide just some color on how the primary markets in Florida, Miami, Orlando, Tampa are trending relative to your expectations, just looking at pricing and occupancy?

Well, I don't have the price occupancy here in front of me. Do you have it?

No, not by market.

I could tell you on a sequential basis, Todd, Orlando was up 2.1% for the quarter, Charlotte, up 1.2%, Miami, up 0.1% on a sequential basis. Absolute growth, year-over-year, we've got Miami at 3.4%, Charlotte at 3%, Orlando at 2.8%, Tampa at 2.5% year-over-year revenue growth. Does that help you?

Very much so. Would you say you're incrementally more positive or say you're trending a little ahead of schedule versus how you would have assessed Florida this time last year?

Well, I'm very happy that Florida is moving in the right direction, especially across the entire platform there. Miami, Orlando, Tampa. It's a great sign. As you know, Florida was pretty hard hit. Not to take anything away from our team down there, the comps. Florida has been in a roll-down period for about 2 years, so the comps are getting a little easier. But they've done a great job. The portfolio's pretty full down there. We're regaining some pricing power. So we've got a good team on the ground, and they're executing and positive outlook for the balance of the year in the Southeast. If we had a hurricane or 2 this year, later in the fourth quarter in Florida, you would really see the numbers kind of move off the charts.

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

Ron, I have a question on expenses. The 0 -- the flat for this quarter comes on the heels of maybe 3 or 4 years of either flat or fairly up or even a decline in expenses. How much more efficient can you guys get on that and should we expect that to start trending up?

Well, Michael, let me -- property taxes were at a run rate of 2.5%. John, that's our current...

That's our current estimate for the entire year.

Property payroll this quarter was up 2.9%, Michael. Most of that is incentives at the property level due to the higher occupancies and better sales at the property level. That was also up a couple of percent last year. Advertising and promotion's down in Q1, and as I mentioned, will be down a couple of million dollars. Why is that trending down? Well, if you recall, when we went into the downturn in '09, we really ramped up the media spend. So it's going to get easier as rates improve and we can dial down the media spend. R&M is down this quarter, mainly due to lower snow. We don't have any control over that. So that's a benefit we'll get. My guess is our R&M will be comparable to last year for the balance of the year. And then other expenses is primarily management is up 3.5%, and my guess is that'll be up 2%, 3%. So on a long-term run rate basis, and the 2 wildcards here are advertising and promotion and property taxes, but on a long-term run rate basis, I would expect core expenses to go up 2% to 3% a year.

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

Ron, you talked about pricing in the market. You also talked about the size of the deal pipeline right now. Just curious, I mean, you bought a decent amount of properties and lease-ups. Just wondered if you could characterize the type of products you're seeing right now a bit better.

I'm sorry I didn't quite hear the first part of what you said. Could you repeat that please?

Sure. You talked specifically about cap rates, as well as overall deal volumes on the acquisition side. Just curious as to what you're seeing in types of product. I know outside of the A-American transaction last year, most of the properties you've been acquiring had a substantial lease-up opportunity on them. Just curious as to what you're seeing on that front currently?

There's a mix. The larger, I'm familiar with a couple of the larger transactions that were announced by the other public companies this quarter. One was a pretty well marketed deal. Another was done with an owner, very good product quality in the Northeast. Those were both -- both sets are pretty established portfolios. The foreclosures continue to come to market, but they're generally onesies and twosie transactions, not a portfolio of 20 or 30 foreclosures. So it's still a mix. But I would say the dollar size of what's coming to market is the more well-marketed brokered portfolio.

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

It's Ross Nussbaum here with Christy. I'm thinking about the topic of move-ins versus move-outs, because the industry data we've seen, and I think some of the results from your peers have suggested that occupancy gains have been more a function of lower move-outs rather than more move-ins. Is that consistent with what you're seeing as well?

Ross, if I -- I mentioned that we had about 20,000 net customers for the quarter. We had 4% higher move-ins or about 8,000, 8,500. But we had about 6% higher move-outs or 11,000 versus last year.

You actually sort of benefited from a little of both?

Yes. It was on both sides of the table, but our move-outs were slightly higher than the move-in.

Okay. How aggressively do you think you can run up street rents now that you're back to basically -- I think the highest occupancy I've seen out of you in the last decade is maybe in the 92% somewhere. So you're getting close to that. At what point do you turn on the street rent spigot such that you're pumping out 3%, 4%, 5% rent growth on that front?

Ross, it's kind of tough to do that unless you're well below competition. If we start pushing it up well above competition just to drive rates up, because we're highly occupied, I can guarantee you what will happen, our move-in volume will shrink. So we just don't drive them out just because we're full. We also need to be cognizant that we're in a highly competitive industry and we have a lot of competitors out there that are doing a lot of pricing and promotion, as well as we are. And so we're very cognizant about that as we move street rates and don't want to get too out of whack. Last year, I've mentioned that I felt like we got our street rates too high and I think we gave away some market share as we did that. This year, I can guarantee we won't be doing that.

Your next question comes from the line of David Harris with Gleacher & Company. David Harris - Gleacher & Company, Inc.: You know how schizoid we folks are in the capital markets. And it seems like the spook this week is about the economy slowing down in the second half. Are you seeing anything that into your real-time reports from the [indiscernible], Ron?

No, David. I mean, we're heading into May, as I mentioned at about 91.3%. That's where we were in June of last year. So we're about a month, 1.5 months ahead in terms of hitting our peak occupancy this year. Demand is robust across the platform. And as John mentioned, he's modulating the promotional discounts and we're dialing back the media spend. So I'd take away from that from what we're seeing, we're fairly confident about our ability to kind of hold pricing and hold volumes. It's a real time thing, it changes week to week. But what we're seeing to date is that it's pretty decent demand across the platform. David Harris - Gleacher & Company, Inc.: I mean, when we see move in the economy, I mean, the spike in oil prices led to much greater energy price inflation, for example, or substantial job losses. I mean, how quickly does that typically translate through to the tenant demand that you see? Does it take a while? Or is it pretty simultaneous?

Well, I think that the big picture, and I really can't answer that question in detail, but the big picture is from 2 years ago, people are out of their bunkers, they're out doing things. Unemployment, yes, is still at 9%, but people are out doing things. There's more activity today than there was 2 years ago. And all of that is very good for our business.

Your next question comes from the line of Smedes Rose with Keefe, Bruyette & Woods. Smedes Rose - Keefe, Bruyette, & Woods, Inc.: I just wanted to go back to your earlier comments when you thought that development might pick up more next year, which I think is a little bit different from maybe what we've talked about a couple of quarters ago, where just given the asset class and banks' unwillingness to lend to shorter-term assets that don't prelease, et cetera. Are you seeing that change in the field? Or you were thinking more the larger private operators or public companies might get back in development? I mean, I know that you said you wouldn't, but just maybe a little more detail on what you're seeing there or thinking there?

I don't know what the other public companies are doing or thinking of. I just look at the pricing of some of the assets that are trading and what that is relative to replacement costs, and go sometime down the road and a developer type will show up there and start to put some product up. And my guess, it will be, as usual, Texas will be the first place.

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

Ron, just if I can clarify an earlier comment. It sounds like the A-American stuff, I think that's what you were referring to earlier, which I think you bought kind of in the, maybe in the mid- to high 7s. You thought maybe 100 or 150 bps of compression today. So maybe in the low to mid-6 potentially. A, is that number about right in terms of what you meant; and then b, is Public Storage a buyer in top markets at that kind of level?

Your numbers are within a pretty close range there, Michael. And are we a buyer for the right assets at 6.5 or 7? I'd say, yes.

Your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller - JP Morgan Chase & Co: Just a real quick follow-up. For the non-Same Store pool, what was the average occupancy in the first quarter?

Give us a second here. The Q will be filed later today.

And Michael, there's 103 assets in that pool. The average occupancy is 80.6%. That compares to last year at 85.2%. And the reason why there's a dropoff is because of the facilities we acquired last year, mainly A-American properties that averaged 64.5% occupancy during the first quarter of this year.

Your final question comes from the line of Eric Wolfe with Citi.

Mike Bilerman. You said the G&A was $30 million to $36 million for the rest of the year?

That's correct.

And so we're talking $44 million to $50 million for the year. The 10-K had $35 million to $40 million. And so what was the big change in projection relative to, I guess, what was put out in early March?

The big change has to do, Michael, with the stock-based compensation expense that I've mentioned in my prepared remarks. That will be averaging $2.3 million for the quarter, for each quarter. It was $2.3 million in the first quarter. It will be $2.3 million in each quarter going forward for a total of about $9 million. That was not estimated -- because that program was not in place at the time we disclosed the numbers that you rattled off in the 10-K.

And so what is that program specifically? Where is that $10 million going and is it -- what sort of investing hurdles?

Yes, what it is, it's based upon revenue growth targets and it's been given to various employees throughout the company. If certain revenue targets are hit, they will earn restricted stock units. And the way that restricted stock units are working is, is that the -- because we think we will hit those revenue targets now, we had to start accruing the expense even though, the measurement dates of whether we hit the target or not won't be determined until, obviously, 2011 is over. But to give you some more clarity on the expense, the expense is front-end loaded over -- they've used their options or restricted stock, excuse me, vest over a 5-year period, and the expense is front-end loaded. The expense in the first year, which is 2011, will be $9 million. In 2012, we're estimating that expense to go down to $4.9 million. 2013 will be $2.9 million. 2014 will be $1.6 million, and then 2015 will be $700,000. So you could see the expense is hugely front-end loaded. And again, that will obviously depend -- it's all obviously contingent that we hit a certain revenue target, which right now, we believe, we will hit that revenue target.

And that $19 million net worth -- because I know sometimes the allocation on the P&L is different than the value of the program because you have forfeiture grants and you have all these other things that go into it. So what's the -- I guess, what's the totality of the program? And then how much is the senior management versus the people out in the field and your officers?

I can't tell you the breakdown between senior management and the field. I think the bulk of it is out at the field. But you're right, in terms of about $19 million of expense.

Michael, if you want to break out the executive team versus the field management, you can go to the proxy. It breaks down the plan in terms of the revenue targets and which of the senior execs here got the RSUs, how much they got for this year. This plan has actually been in place. This is the third year of the plan. And for the last 2 years, we've not hit the revenue targets, and so there's been no RSU grants for the previous 2 years. So this is the third year. We're hoping to hit the targets. I can tell you all the people participating in the plan are highly focused on hitting the targets because, as John mentioned, there's $20 million of RSU grants on the line.

Okay. 20 million reasons.

That was our final question, and I'll turn the floor back over to management for any closing remarks.

Okay. I want to thank everybody for attending our conference call this morning, and we look forward to seeing many of you in about a month in New York at the NAREIT [National Association of Real Estate Investment Trusts] conference. So have a good afternoon, and we'll talk to you next quarter.

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