Public Storage PSA Q3 2025 Earnings Transcript

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DATE

Thursday, Oct. 30, 2025 at 12 p.m. ET

CALL PARTICIPANTS

President and Chief Executive Officer — Joseph D. Russell

Chief Financial Officer — H. Thomas Boyle

Senior Vice President, Investor Relations — Ryan C. Burke

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TAKEAWAYS

Same-store Revenue Growth -- Same-store revenue increased as in-place rents climbed 0.6% in Q3 2025, with notable outperforming markets included Chicago, Minneapolis, Tampa, Honolulu, and key West Coast markets, each achieving 2%-4% same-store revenue growth.

Expense Performance -- Same-store expenses remained flat for the quarter, supported by reductions in property payroll and utilities attributed to digital and AI-driven initiatives.

Core FFO per Share Growth -- Core funds from operations (FFO) per share rose 2.6% in Q3 2025, a 560 basis point acceleration from the same period in the prior year (Q3 2024), led by outperformance in both same-store and non-same-store pools.

Acquisition and Development Activity -- Announced more than $1.3 billion in wholly owned acquisitions and developments year-to-date, with a $650 million development pipeline scheduled for delivery over the next two years.

Leverage and Retained Cash Flow -- Leverage measured at 4.2x net debt and preferred to EBITDA.

Expense Control Initiatives -- Labor hours reduced by more than 30% through AI-enabled staffing and digital customer service, resulting in increased employee engagement and lower turnover.

Digital Platform Penetration -- 85% of customer interactions and transactions now occur through digital channels as a result of omni-channel investments.

Guidance Revision -- Raised the outlook for full-year same-store revenue, same-store NOI, non-same-store NOI, and core FFO per share growth, with a near 1% increase in core FFO per share growth outlook with one quarter remaining in the year.

Non-Same-Store NOI Guidance -- Updated incremental NOI expectation from assets to be stabilized post-2025 up to $130 million for 2026 and beyond.

Move-in Activity Metrics -- New customer activity rate and volume declined about 9% compared to the same period last year; October showed similar but slightly improved trends, driven by stronger move-in activity with lower rates and less discounting.

Occupancy Levels -- Consistent with revenue priorities over occupancy or rate alone.

Margin Enhancement on Acquisitions -- Management reported a consistent 10% margin enhancement on newly acquired assets due to both revenue and operating expense improvements.

Yield Targets for Acquisitions -- Current acquisition yields are targeted around 5.25% year to date, with expectations that these assets will stabilize into the 6% range.

SUMMARY

Management emphasized industry stabilization and lower development activity, projecting fewer new supply deliveries through at least 2027. Technology and AI investments have structurally reduced labor requirements, increased customer digital engagement, and driven ongoing cost discipline alongside revenue optimization. The updated acquisition pace reflects both diversified deal sourcing and higher risk-adjusted returns due to their data-driven underwriting and integration capabilities.

H. Thomas Boyle stated, "As Joe mentioned, We adjusted our full-year guidance to reflect the positive trends I just mentioned, with increased outlooks for same-store revenue, same-store NOI, and non-same-store NOI. Raised the outlook for full-year core FFO per share growth by nearly 1% with one quarter remaining in the year. Looking forward, we are very well positioned to continue driving performance with differentiated strategies that will further enhance our compounding returns platform."

Los Angeles same-store revenue declines for the year are now expected to be in the negative 1%-2% range, a positive revision from previous negative 3% guidance, though state-imposed price restrictions will continue to weigh on results until early January.

Solar installations exceed 1,100 properties, with further expansion planned as part of ongoing expense reduction and sustainability initiatives.

Improving transaction markets and a strong balance sheet are positioning the company to consider portfolio growth at or above historically high acquisition levels, depending on opportunity availability in 2026.

Management reported that incoming asset yields are consistent with prior quarters, with non-stabilized portfolio integration quickly adding to platform-level returns.

INDUSTRY GLOSSARY

NOI (Net Operating Income): Property-level income after operating expenses, excluding items like interest, taxes, depreciation, and amortization, commonly used in real estate analysis.

FFO (Funds from Operations): A REIT-specific metric indicating cash flow from operations, excluding gains or losses from property sales and certain non-cash expenses.

Same-store Pool: A subset of properties held and operated for comparable periods, used to measure underlying operational performance trends excluding the effects of acquisitions or new developments.

Non-same-store Pool: Properties not included in the same-store pool, typically recently acquired or newly developed, evaluated both for current performance and potential stabilization returns.

Stabilized Asset: A property that has achieved expected or market occupancy and operating income, no longer in the lease-up phase.

Full Conference Call Transcript

Joseph D. Russell: Thank you, Ryan, and thank you all for joining us today. Public Storage's third quarter results reflect differentiated strategies that continue to drive our outperformance. In addition to encouraging industry trends, including operational stabilization, lower competition from new supply, and increasing acquisition activity, we are raising our 2025 outlook for the second consecutive quarter based on outperformance in same-store and non-same-store NOI growth, acquisition volume, and core FFO growth per share.

Public Storage's industry leadership is proven by, among other things, the highest revenue generation per square foot, the most profitable operating platform, the strongest portfolio expansion through our best-in-class teams, and backed by our growth-oriented balance sheet, the highest retained cash flow generation which we utilize to invest back into our business to drive earnings and FFO growth in excess of stabilized same-store growth driven by our compounding returns platform. We have been actively advancing the pillars of this platform, including our leading operations, capital allocation, and capital access.

Just a few of many examples in terms of our operating innovation include first, we have the industry's leading omni-channel customer experience through which we offer digital options across their entire journey. The success is evident with customers now choosing digital paths in 85% of their interactions and transactions with us. Second, with the shift to digital, we are modernizing our field operations by utilizing AI to directly provide customer service and staff our properties more appropriately. The days of needing a property manager on-site all day, every day are behind us. Instead, we now have people on-site when and where customers need help.

To date, this has reduced labor hours by more than 30%, while also increasing employee engagement and lowering turnover. And third, we are deploying new technology-based strategies across the entire organization, including customer search and generative engine optimization, unit pricing and revenue management, asset management including security, vendors, and maintenance, identifying and executing development opportunities, and putting the right tools in our field and corporate teams' hands to even more effectively drive revenues and control expenses. Collectively, these initiatives are driving higher revenues, margins, and core FFO per share growth. Now I'll turn the call over to Tom.

H. Thomas Boyle: Thanks, Joe. We are leaning into our platform strength. Joe spoke to our industry-leading operations and technology initiatives. I'll now touch on capital allocation, capital access, and performance specifics. On capital allocation, we have accelerated portfolio growth more than $1.3 billion in wholly owned acquisitions and developments already announced this year. The acquisition opportunities are relatively broad-based across size, geography, as well as seller type. We will continue expanding the non-same-store pool through additional acquisitions and our $650 million development pipeline to be delivered over the next two years. We are built to execute on this activity based on our industry relationships, data-driven underwriting, and strong capital position.

With leverage at 4.2 times net debt and preferred to EBITDA, and retained cash flow reaching about $650 million this year, we will continue using our advantageous cost of capital to fund portfolio expansion and drive core FFO per share growth. Now shifting to financial performance for the quarter and our improved outlook. Revenue growth in the same-store pool came in ahead of our expectations primarily due to strong in-place customer behavior. Overall, in-place rents were up 0.6%, offset by lower occupancy. From a market perspective, Chicago, Minneapolis, Tampa, Honolulu, and the West Coast are standouts, with revenue growth in the 2% to 4% same-store revenue range.

Speaking specifically to the West Coast, our strong presence top to bottom from Seattle down to San Diego, representing a third of our NOI, serves us well with good demand trends and more limited new supply. Los Angeles will return to strong growth when the state of emergency price restrictions expire. Our expense control across the same-store pool continues to be strong as well, held flat for the quarter and driven by reductions across most line items. Continuing declines in property payroll and utilities are direct results of the differentiated initiatives that Joe spoke to. Accordingly, same-store NOI growth came in better than we anticipated.

Outside of the same-store pool, outperformance in our high-growth non-same-store pool helped drive core FFO per share higher by 2.6%. This is a 560 basis point acceleration from the growth level achieved in the third quarter of last year. As Joe mentioned, our strategic focus continues to drive core FFO per share growth well in excess of our stabilized same-store growth. We adjusted our full-year guidance to reflect the positive trends I just spoke to, with increased outlooks for same-store revenue, same-store NOI, and non-same-store NOI. All in, we increased core FFO per share growth by nearly 1% with one quarter left in the year.

Looking forward, we are very well positioned to continue driving performance with differentiated strategies that will further enhance our compounding returns platform. With that, Rob, let's open it up for questions.

Operator: Thank you. At this time, we'll be conducting a question and answer session. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Eric Jon Wolfe with Citi. Please proceed with your question.

Eric Jon Wolfe: Hi, thanks for taking my questions. As we get closer to year-end, could you maybe just talk about the process you go through in setting your budgets for 2026 in terms of how you go about determining things like where moving rents to go, occupancy, and sort of all the main variables that are going to make up growth for next year.

H. Thomas Boyle: Yes. We can talk about that. I mean, we're continuously forecasting and updating our forecast for the business as we move through any given year, obviously, starting with the 2026 process, something we started several months ago. And people are forecasting their businesses, we're using data-driven processes in terms of some of the line items you spoke to, historical trends as well as predictive analytics to drive those forecasts. We certainly challenge our teams to come up with new initiatives and to drive the business going forward into a new year. And that process is well underway.

Joseph D. Russell: And Eric, I'd add that it's a robust process across literally every function within the company. It's fluid. It doesn't end and begin even as we speak, it builds and we have a lot of analytics. The things that we're doing from a deployment standpoint, as we've spoken to, we have a whole host of efficiency efforts that are tied to investments in digital and otherwise that continues to drive our margins to the level that we attain. And then to Tom's point, the whole host of things that we do tied to revenue optimization, the entire portfolio with not only our same-store but our non-store portfolio.

Eric Jon Wolfe: Got it. That's helpful. And I think in the press release, you characterized things as sort of stabilizing. Don't know if you feel like maybe there's a path that things getting back to more sort of a normal run rate growth or what it would take to get there. But just sort of curious how are you thinking about the sort of the trends that you've seen recently in October over the last couple of months? You're starting to get a little bit closer back to normal, if it's more of a just a kind of like a stabilization and sort of a little bit more of a muted rebound?

H. Thomas Boyle: Yes, a good question. I think as we look ahead, we do see steady stabilization. And as we've moved through 2025, we've seen demand bouncing off the bottoms of 2024. We see new supply continuing to be coming down just given the challenges associated with new development in many of the markets we operate. But I'd probably point you most notably to the fact that what I commented on earlier around some of our stronger markets where we're stable, but we're rolling at a healthy clip as well. And just highlighting that the West Coast again growth in the 2% to 4% same-store revenue growth range and good fundamentals.

So some of the markets aren't quite there yet, but we're seeing a good and healthy customer and overall operational performance in many of the markets we operate today.

Eric Jon Wolfe: Got it. That's helpful.

Operator: Thank you. Our next question comes from Michael Griffin with Evercore. Please proceed with your question.

Michael Griffin: Great, thanks. I'm curious if you can give us any insight into whether new customer behavior has changed at all. It seems like the revenue this quarter was mainly driven by existing customers, which it seems to remain sticky. But as these move-in rents decline on a year-over-year basis, do you feel like we're starting to hit a trough there? Or do you think there's potentially further to go in terms of new move-in rents?

H. Thomas Boyle: Yes. I'd say taking a step back, I think there's too much focus related to move-in rents as one particular element of revenue, right? Overall, across the organization, we're focused on revenue as the most important metric. And that is a combination of what you're highlighting, yes, move-in rents, but also move-in volumes, move-out activity, existing customer behavior, and rent increases. And it continues to be a competitive operating environment for new customer move-ins, and you could see that through the quarter. But the focus here is certainly around revenue as the most important metric, and that goes throughout the organization. From the property managers and property staff all the way through the home office organization.

So we continue to make investments through our platform to drive revenue in a competitive environment. And I would point you not to one particular metric.

Michael Griffin: Thanks, Tom. Appreciate the context there. And then maybe just on the revised guidance, it seems like you're trending in the more favorable range both on expenses being toward the low end, NOI being toward the high end at least on a year-to-date basis. So maybe are there any puts and takes we should think about when looking at the fourth quarter sort of implied guidance, maybe tougher comps in certain line items? Or any clarification there would be helpful.

H. Thomas Boyle: Yes, sure. Every quarter has got its own set of comps. I do think the fourth quarter specifically property tax is a tough comp. We had a number of healthy refunds last year. We'll see what the team can execute on similar amounts this year, but that's a pretty tough comp. And then as we think about same-store revenue, we've been consistent highlighting that the impact on Los Angeles will grow as the year progresses. And so we do anticipate that to occur in the fourth quarter. Otherwise, those would be the two items I'd highlight for you.

Michael Griffin: Great.

Operator: Thank you. Our next question comes from Samir Khanal with Bank of America. Please proceed with your question.

Samir Khanal: Yes. Thanks a lot. I guess just sticking to that topic about LA and the impact. I mean, kind of what are you hearing on the ground given the price restrictions and the burn-off in Jan? I mean, what are your channel checks kind of telling you at this point?

Joseph D. Russell: Yes, Samir. Not probably anything differently than you're hearing, which is completely in the hands of the governor. And the decision timeframe he's looking to come back to announce whatever next set of decisions would be very early January. So no additional color or context beyond it could result in a whole range of outcomes, but nothing specific at this point.

Samir Khanal: Got it. And then I guess Tom on the expense side, when you look at expense growth kind of in that 2% range, you guys have done a great job in terms of controlling expenses. I mean, how much room do you have there to kind of still kind of grow at that sort of 2% into next year or at least the next twelve to twenty-four months? Thanks.

H. Thomas Boyle: Yes, sure. And appreciate the comments. The team is focused around a number of additional different initiatives to drive operating expense performance while also driving revenue and the overall business. And a couple that we continuously highlight and seeing bear fruit again this year continue to be the digital investments that we've been making. One of the side effects of those digital investments is the ability to think holistically differently about our property staffing and customer interaction. So we saw some fruit borne from that this year. More to come there as the team continues to drive evolution in our operating model.

And then I think the other one clearly to highlight is our solar power initiatives, which will have solar on over 1,100 or we have solar on over 1,100 of our properties today and continue to drive forward with that initiative. And we'll continue to see the benefits from that. But in this environment, we're looking for all those ways to invest in the platform and drive better OpEx performance.

Operator: Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Caitlin Burrows: Hi there. I was wondering if you could talk through your current expectations for supply and maybe how you expect the next twelve months will compare to the last twelve months and what's driving that?

Joseph D. Russell: Yes. Sure, Caitlin. The trajectory continues to be the same, meaning on a year-by-year basis, we see the pressure creating fewer and fewer developments as a whole industry-wide. There are here and there certain markets that may have a number of additional assets coming to market, but clearly and nationally. And in a very positive context, that supply delivery momentum continues to go down. And we've seen it throughout 2025. We're going to see it into '26. And I would even say it would continue into '27. The basis for that outlook continues to be first and foremost, we're in that business nationally. We see the complexity and the friction that comes from any kind of a development.

It's tied to the things that you have to do from an entitlement standpoint becoming more and more complicated, cost structure of assets themselves, and then again formulating and understanding the risks that would be tied to going into the development process that in and of itself could take anywhere from two to three years. If not longer. And then going to a stabilized asset that could take another two, three, or four years.

So the risk factors for any kind of developer out there are much higher today and they continue to go a direction that's actually very good for the industry as a whole, meaning there are going to be fewer and fewer deliveries even going into the next couple of years.

Caitlin Burrows: Got it. And then so I guess then leading into PSA's own development activity, it does sound though like you guys want to maintain or backfill your pipeline of activity. So other than I guess size, what do you think differentiates your strategy and ability to kind of get past all of those issues? And how is your kind of stabilization over the past few years been going versus underwriting?

Joseph D. Russell: Sure. I'll take the first part and I'll have Tom talk to the stabilization, which is quite good as well. So no question, we have very different capabilities. It starts with inherent and deep-seated knowledge market to market with the amount of inherent operational data that we get. We have an ability to underwrite assets from a development and risk standpoint far differently than others do. We have the data set that guides us to optimize not only property size but also configuration within properties, unit size mix, etcetera. We can find pockets of assets quite effectively or pockets of asset development very differently than most developers.

We've got a good national team working aggressively out finding and developing assets in a window that I just spoke to. That is far more difficult. So in a reverse way for us uniquely, it's providing the opportunity to go in and find very powerful development opportunities in a whole host of markets now nationally. So our confidence and our commitment to the business has never been higher, but at the same time, it's never been a more difficult business. So it is a very good and unique window for us to continue to deploy capital and it continues to lead to substantial and the highest returns that we see from any capital allocation effort.

Tom, you can go ahead and talk about some of the metrics side of that, which continue to be quite good.

H. Thomas Boyle: Yes. No, our lease-up of our developments that have been recently delivered continues to do well, actually pacing a little bit ahead of expectations year to date. And you can see in the sub the yields produced by those vintages. To Joe's point earlier, it does take two to four years for those vintages to stabilize. But we're seeing good trajectory across those vintages today. And achieving those strong risk-adjusted returns that Joe spoke to.

Caitlin Burrows: Thanks.

Operator: Thank you. Our next question comes from Ron Kamdem with Morgan Stanley. Please proceed with your question.

Ron Kamdem: Hey, just two quick ones. I think this came up earlier, the guidance sort of assumes a little bit of deceleration as you get into sort of 4Q. And I guess the obvious question is just as you're thinking about top of the funnel demand, whether it's some of the web search data or anything like that, are you seeing anything from that standpoint that's showing that demand may be slowing? Or how do you sort of think about that? Thanks.

H. Thomas Boyle: Yes. Thanks, Ron. No, nothing implied there as it relates to demand overall. We continue to see healthy customer activity to date. I think the item that I would highlight as it relates to same-store revenue, if that's where you're focused, is what I highlighted to Michael Griffin earlier around the cumulative impact of the rental rate restrictions on Los Angeles, which will be holding us back a little bit more in the fourth quarter compared to the third quarter. And then that property tax, tough comps as well. But otherwise, the non-same-store pool is set to continue to accelerate given the activities to date and the capital allocation that we've been putting forth.

Ron Kamdem: Great. And then, yes, my second question was just on the acquisition pace picking up. Just maybe talk about the product that you're seeing stabilized, non-stabilized, and sort of cap rates and returns expectations? Thanks so much.

Joseph D. Russell: Sure, Ron. It's a combination of all those things. So had an active quarter obviously and pleased to see the range of different types of sellers that have come to us either through off-market transactions and or assets that we've been trolling or in dialogue for some period of time. So it's a combination of some larger portfolios that we've curated to match some of our own investment requirements market to market. It's also been a combination of some smaller portfolios that have resulted from some of our off-market and or private conversations with them, always a healthy way to do some additional business.

And then as we typically do with our national focus and the team that's out working nationally, relationships and otherwise, we're doing a whole host of one-off or much smaller transactions. So it's a whole combination. It's again a market focus that we have to stay very close to and we're well suited to do so.

We have unique capabilities to underwrite these assets with again going back to our development processes knowing and understanding markets very deeply and been very pleased with a whole host of different types of assets that are either on one end of the spectrum stabilized or others that we're very comfortable bringing in the portfolio that are not stabilized, but once we put them on our platform, very comfortable and confident we're going to get the kinds of returns and meet expectation from again invested capital going into those assets as well.

So we're seeing a fair amount of good activity based on a lot of hard work that continues to go in that process, but it's bearing some good fruit.

Ron Kamdem: Thanks so much.

Operator: Our next question is from Eric Luebchow with Wells Fargo. Please proceed with your question.

Eric Luebchow: Great. Appreciate the question. So maybe could you update us a little bit on operating trends through October in terms of occupancy, moving rates, anything you're seeing as we kind of move into the fourth quarter here?

H. Thomas Boyle: Yes. Sure. Happy to do that. I'll provide a couple of elements. And as I spoke earlier, the focus continues to be on revenue overall. But specifically, talking about new customer activity, I'd maybe frame it as if you look at the third quarter and the rate and volume associated with new customer activity is down about 9% year over year. And each of the months throughout the quarter, a little bit different in terms of volume versus rate, etcetera. October is doing a touch better than that, down 9%. So some improving from that standpoint, really driven in this particular month driven by stronger move-in activity, and we're achieving that with less discounts, but also lower rates.

So better net outcome there. Point you to move-in rates that, again, are driving that volume and being in the down 10%, 11% ZIP code, but driving good volume up 3%, 4%. In terms of occupancy, because of that move-in volume, occupancy closed or is sitting today down about 40 basis points year over year. But again, I reiterate the revenue focus versus occupancy or rental rate and feel like we're in a very good place from an occupancy standpoint to drive revenue in a steady, stabilized, and hopefully improving operating fundamental picture.

Eric Luebchow: Great. And maybe just a follow-up. I know you touched on this a little bit, but the L.A. rent restriction headwinds, you had guided to about a 100 basis point headwind. So maybe you could just update us on what you're expecting kind of as we look into Q4 and what you see underlying demand looking like on the West Coast? And I guess a related question, I mean, there has been some recent news about rent restrictions related to immigration activity in LA County with ICE. And so just wondering if you expect that to have any impact in the region. Thanks.

H. Thomas Boyle: Yes, sure. So two components there. One, related to LA performance for the year, it is trending a little better than what we had expected at the start of the year. And I think last quarter I provided some perspective around revenue growth expectations for Los Angeles. For the year being down close to down 3% for the year. We think based on where we are right now, probably going to be down in the 1s meaning negative 1% and negative 2%. For the year. So some better improvements there.

In terms of and I would point to the drivers there, really being what we spoke to earlier around really top to bottom, the West Coast, good customer activity, less new supply in those marketplaces and good trends. So good customer activity there. And then the second part of your question, the more recent state of emergency is going to have a negligible impact on our operating performance in the fourth quarter, just as you think about a state of emergency already being in place through the January. So no change there, but we're certainly still in an environment with pricing restrictions associated with those state emergencies.

Operator: Our next question comes from Spencer Allaway with Green Street Advisors. Please proceed with your question.

Spenser Allaway: Thank you. Just one for me. Can you talk about the amount of NOI upside you guys are currently underwriting when you're acquiring from mom and pop operators today and maybe just broadly, I know that it varies asset to asset. And then, you know, with the increasing prevalence and uses for AI, do you think that upside is going to increase meaningfully in the years coming just particularly as we think about the amount of data PSA has to work with and enter into, like, algorithms?

H. Thomas Boyle: Yeah. Sure, Spencer. So in terms of cash flow that we can earn from assets that we fold into the portfolio, that's an important component to our capital allocation strategy as we continue to make investments in our operating platform and drive performance there. We can utilize that advantage as we deploy capital. And the most visible thing that I would point you to is the margin advantage. That we have in and out of the marketplaces that we operate in. And that gives you a sense. Generally speaking, that margin advantage for new assets is both on the revenue side and the OpEx side driving that margin performance.

And so consistently getting towards 10% sort of margin enhancement for lots of the assets that we acquire. In terms of going forward, I noted earlier, we continue to make investments in the platform, both from a revenue and OpEx side. And so we do anticipate that we'll continue to drive performance within our operating platform and that will then immediately have the same impact on the assets that we're putting into the pool, both for our wholly owned assets as well as for the benefit of our third-party management customers. To drive our operating platform.

Spenser Allaway: Okay. Great. Thank you for the color.

Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Todd Michael Thomas: First, two quick follow-ups on acquisitions. Your volume is approaching $1 billion for the year. So fairly active year. First, what's the outlook for that pace to continue into 2026? And then second, you've had some very active years in the past. You did more than $5 billion in '21 and nearly $3 billion in '23. Is now a good time to lean in ahead of a recovery? Just curious what the appetite is like today to do something more sizable or strategic.

H. Thomas Boyle: Yes. So a number of components to that question. So Joe and I will probably tag team this one. But I think we have seen improving transaction market this year. Joe spoke to that a little earlier. I do think the improving debt market trends set up for more active transaction volumes going forward. And so I think that's an opportunity set. In terms of our appetite continues to be very strong. We look back at 2021 and the $5 billion of acquisition that we acquired there and would love to do that again. So it's a question of what the opportunity set is ahead of us. But we're built to be able to integrate that level of activity.

And fold those assets into the operating platform that we're speaking to. So we're excited about the potential for increased activity. We'll have to see what 2026 brings.

Joseph D. Russell: Yeah. Todd, I'd just add the balance sheet is well positioned to service as we again unlock those range of opportunities to Tom's point, we've proven over the last five years in particular that whether we're in a process where we're taking down one individual very large portfolio or a whole collection of smaller assets. All of our systems and digital investments, etcetera, allow us to integrate these assets incredibly smoothly in many cases within a twenty-four-hour timeframe from one platform to another. So we've got the technique, the skill, and now time and again the experience to continue to aggregate these assets. And we are going to continue to look for any and all ways to do just that.

Todd Michael Thomas: Okay. That's helpful. And then rung out a lot of the efficiencies at this point with maybe more benefits accruing toward acquisitions mainly going forward.

Joseph D. Russell: It's top to bottom, Todd, and continues from an investment standpoint, priorities around impacts to the business that starts right at revenue, all the things that we can do through our technology and investments tied to revenue and then it's optimization. Clearly, you can see that with the efficiency and continued outperformance on margin achievement. But again to give you color on where we are on this roadmap, we're very confident we have only just begun. I mean, there are very meaningful things that the team continues to invest in literally every part of the company. It's very empowering. It's not easy.

But we have the fortitude and we continue to display the ability to use these tools very effectively and many times a much shorter timeframe than we may have originally estimated. As we've spoken to now for some time, 85% of our customers now transact with us digitally where four or five years ago that number was basically zero. And with again the migration to more and more data-driven processes that creates iterative and in some cases compounding opportunities to drive efficiency much sooner and more effectively than we may have even envisioned at the front end. And we are encouraged by the team by team effort that continues to play through.

We are no question a self-storage company, but we have a focus on data optimization that continues to serve us quite well and we're very committed to that.

Todd Michael Thomas: Kind of margin upside do you think is ultimately achievable?

Joseph D. Russell: Well, we'll see how that plays, but we're confident we're not done.

Todd Michael Thomas: Okay. Thank you.

Operator: Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Juan Carlos Sanabria: Hi, thanks for the time. Just wanted to follow-up on L.A. quickly. You talked about feeling a bit better about the drag that LA is going to see for the year. I'm just curious if you could translate that down 3% to now down 1% to 2% on the overall portfolio? And is there any offsets from the strength in LA and the West Coast the same store revenues.

H. Thomas Boyle: Yes. And I think giving you the guidepost as it relates to the markets should be helpful. I think the fourth quarter, obviously, implied number associated with that, as I've noted a couple of times, will be holding us back a little bit further as it relates to the impact the overall same store. The demand associated with new customers as well as one of the things we've seen in Los Angeles is less vacate activity, and we've seen that up and down many of our markets. Nationally less vacate activity also helpful. So occupancy is up a little bit in Los Angeles.

And so a lot of the same trends Joe and I have already spoken to on this call in terms of good customer activity, very challenging new development environment, continue to support Los Angeles despite the fact that we can't charge the rents that we otherwise would charge in a competitive marketplace.

Juan Carlos Sanabria: And then just cap rate wise, how should we think about going in yields and targeted stabilized yields on the investments you're making at around a billion dollars year to date.

H. Thomas Boyle: Yes. No, the yields that we've been targeting are pretty consistent with what we highlighted last quarter. So we're likely to achieve going in yields in the kind of 5.25 zip code on a mix of stabilized and unstabilized activities year to date. And so the points we've been making on this call, we have the opportunity to plug those assets into our operating platform. And as we do that, we'll achieve more cash flow from those assets. And so those will stabilize into the sixes.

Juan Carlos Sanabria: Thank you.

Operator: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.

Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Sticking with the transaction market, can you talk about the opportunity that you see with lease-up properties, you'll be able to operate them better maybe there's the appetite to purchase that? And then also the increase in the non-same-store NOI guidance move higher by $10 million. Does that reflect improved performance of the previously owned properties or does that reflect the newly acquired ones? Thanks.

Joseph D. Russell: Okay. I'll take the first part and Tom can take the second, Michael. But no question, we have continued to deploy capital into many assets that are far from stabilization from some that literally are vacant to 30%, 50%, 70% occupied and otherwise. And time and again, proven the ability to lift the performance of those assets very confidently just like I spoke about earlier, tied to the knowledge that we have from a market standpoint, all of the techniques that we're using from revenue management, operational efficiency, knowledge of customer dynamics, knowledge of the market itself. So no question we have a high degree of confidence in any range of stabilization from an asset standpoint.

So we will continue to entertain all different asset based on that level of knowledge and skill. And that is continuing to produce the kinds of returns that we're very confident will not only continue, but will give us more running room as we grow the non-same-store portfolio just like we have in 2025. Tom, you can take the second part.

H. Thomas Boyle: Yes. The second part of your question just related to non-same-store performance. Part of that is better performance and lease-up of some of the assets that you're speaking to. And then the other portion is obviously closing on some incremental assets what we had closed under contract. So that combination leads to a better outlook for non-same-store for this year. But you'll also note, we included an update to the incremental NOI from after '25 to stabilization. Which reflects the future engine of growth associated with this pool of assets as they stabilize and lease up. So that's increased to $130 million for '26 and beyond.

Michael Goldsmith: Thanks for that. And my follow-up question your marketing spend is down year over year. I believe your promotions given is also down. So can you just walk through kind of like the thought process around using these levers as a top or as a top of funnel demand driver and just you know, is there a reason why pulling back on some of these factors this is the right time to do that versus maybe leaning in, you know, at a time with demand being kind of uneven. Thanks.

H. Thomas Boyle: Yes. Thanks, Michael. I'd say we consistently use all the tools you highlighted in order to drive the right kind of customer volumes and behavior over time. So we're active in utilizing advertising as well as promotional activity, lowering our rental rates. And as I noted earlier, it all goes into a focus on optimizing and maximizing revenue as the one metric that we're focused on versus individual line items. And that's the focus of the team and we'll continue to use all those tools in order to focus on that revenue metric.

Michael Goldsmith: Thank you very much. Good luck in the fourth quarter.

Operator: Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.

Michael William Mueller: Yes, hi. I guess for some of the stronger markets that you talked about in your initial comments, talk a little bit about how different were the guess, the move-in rent comparisons to year-over-year comps in those markets compared to the rolled-up number we see in the sub?

H. Thomas Boyle: Yes, Michael. I mean, I spoke earlier to the fact that many of those markets I highlighted are performing well. Steady, strong growth from many of them. And associated with that, you have better move-in rents, but you also have better trends from existing customers and good behavior amongst the existing customer base. So it's a combination of things as always. But no question seeing some good strength across many of our markets today.

Michael William Mueller: Got it. Okay. And as a quick follow-up, and I apologize if I missed this one. Any changes in terms of the pushback from customers on ECRI or ECRI levels in general?

H. Thomas Boyle: No. Existing customer continues to perform quite well. You can see vacates were down in the quarter. Price sensitivity remains consistent with our expectations and our modeling. So no shifts there and we continue to be encouraged by the storage consumer as they run with us.

Operator: Thank you. Our next question comes from Brendan Lynch with Barclays Bank. Please proceed with your question.

Brendan James Lynch: Great. Thanks for taking my question. Clearly, you guys are making good progress on the efficiency initiatives, especially on labor. How do you evaluate though if you cut too much? I'd imagine there's some sort of AB testing, but any details on your approach to overage or underage of labor would be helpful.

Joseph D. Russell: Yeah, Brendan. We're on a now multiyear integration which has included, to your point, a whole host of testing relative to the efficacy of optimized labor. And we very conscientiously and first and foremost use customer interaction and customer service as a guidepost to see and understand your point how far to go. The components of that also though include on a per market basis and even a submarket basis, the kind of scale that we have. And with that, the effectiveness of the digital ecosystem that guides us to the predictability factor of this. And the tools that we're using from a predictability standpoint continue to be more and more effective.

So those kinds of tools are the tools that we invest in completely from a labor standpoint that does a multitude of things from an output standpoint. One, again tied to customer service number two, the effectiveness of the team member themselves. Ironically but intentionally. It's also led to a much higher level of employee satisfaction relative to the way that they're operating their day and day environment. It's also and very intentionally provided good expense optimization and we continue to see more and more tools particularly with the amount of data that we're dealing with where we're moving in, for instance, north of 100,000 customers a month. To guide us to the effectiveness of this.

I mentioned earlier that now 85% of our customers are transacting with us digitally. But there are many customers that want to do the opposite and we're servicing them quite well. With again a whole host of different tools that they had to conduct business with us two, three, or four years ago. So more evolution in this entire process, but very good traction, meaning that got more to do and we're excited about it.

Brendan James Lynch: Great. Thank you. That's helpful. I also wanted to ask on housing-related demand. Obviously, that's kind of been a missing element for a couple of years now. Are you seeing any signs of improvement yet? Or any reason to be more optimistic that 2026 would be better than 2025 or 2024?

H. Thomas Boyle: Yes, sure. I mean, I think housing is a component of our demand. It's been relatively stable over the last couple of years as housing transaction volumes have been relatively stable after the step lower several years ago. Clearly, interest rates are a touch lower, mortgage rates are a touch lower. Should be helpful as we think about activity going forward. But we haven't seen anything on the ground yet that would dictate that there's any meaningful shifts currently. And our in-house perspective is that it's going to take some time for the housing market to continue to work through its adjustment with the big shift in mortgage rates over the last couple of years.

So I think it's probably a steady as she goes environment in housing maybe a touch better than that.

Operator: Great. Thank you. We have reached the end of the question and answer session. I'd now like to turn the call back over to Ryan Burke for closing comments.

Ryan C. Burke: Thanks, Rob, and thanks to all of you for joining us today. Have a great day.

Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.

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