Public Storage Q2 2025 Earnings Call

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Public Storage Q2 2025 Earnings Call Company / Call: Public Storage (NYSE: PSA) — Second Quarter 2025 Earnings Conference Call Company participants: Joe Russell — President and Chief Executive Officer; Tom Boyle — Chief Financial Officer Analysts: Michael Griffin — Evercore ISI; Nicholas Yulico — Scotiabank; Jenny (for Ronald Kamden) — Morgan Stanley; Jeff Spector — Bank of America; Eric Luebchow — Wells Fargo; Eric Wolfe — Citi; Spencer Allaway — Green Street Advisors; Todd Thomas — KeyBanc Capital Markets; Michael Goldsmith — UBS; Ravi Vaidya — Mizuho; Juan Sanabria — BMO Capital Markets; Caitlin Burrows — Goldman Sachs; Ki Bin Kim — Truist Securities; Mike Mueller — JP Morgan; Tayo Okusanya — Deutsche Bank Recorded: July 31, 2025 Video: https://www.youtube.com/watch?v=XvwW-g20wyI Key topics: Q2 2025 same-store revenue growth and the 40 basis point occupancy gap; 2025 core FFO guidance low end lifted from $16.35 to $16.45 per share; same-store revenue guidance of -1.3% to +0.8%; Los Angeles wildfire state-of-emergency pricing restrictions and their roughly 100 basis point drag; West Coast, Washington DC and Chicago posting 2-4% revenue growth while Atlanta, Dallas, Phoenix and Charlotte still normalize; more than $1.1 billion of announced acquisitions and development and a $648 million development pipeline; the 538-property non-same store pool and its approximately $470 million of 2025 NOI plus $110 million more in 2026 and beyond; going-in cap rates in the fives stabilizing into the sixes; 4.1x net debt and preferred to EBITDA with roughly $600 million of retained cash flow; the proposed Abacus Storage King and Ki Corporation partnership in Australia and New Zealand and the Shurgard relationship in Europe; tenant insurance, third-party management and lending growth; Big Beautiful Bill bonus depreciation and the expiring solar incentives; California rent control and pricing transparency legislation; ECRI existing customer rent increases and July street rate trends Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— [The recording begins mid-sentence, during prepared remarks.] Joe Russell: balance sheet. As the operating environment stabilizes, new competitive supply deliveries decline further and the transaction market becomes more active. We are holistically enhancing our advantages and positioning for growth. From a performance perspective, the West Coast in particular along with other markets including Washington DC and Chicago are standouts with same store revenue growth in the 2 to 4% range. Our expectation for the impact of fire related pricing restrictions in Los Angeles is unchanged. Similar to most of California, Los Angeles will return to being a higher growth market when the restrictions end. Speaking more broadly, the trusted public storage brand and our geographically diversified portfolio are highly recognizable to consumers and businesses and a source of pride for our team. We have developed an optimized mix of digital and in-person service options that have modernized the customer experience while driving returns and revenues. With our broader operating model transformation, we have created a win-win-win for customers, team members, and our profitability through higher engagement, satisfaction, and efficiency. Our ancillary businesses, including tenant insurance, third-party management, and lending are expanding. Our acquisition and development teams are executing on accretive portfolio growth with a 538 property non-same store pool expected to generate approximately $470 million of high growth NOI in 2025 with an additional $110 million coming through stabilization in 2026 and beyond. and public storage is uniquely positioned to grow internationally as demonstrated by our success with Shurgard in Europe and the potential new partnership in Australia and New Zealand. As announced, we are currently in due diligence and therefore in a quiet period. We are excited about the potential to partner with Abacus Storage King and Ki Corporation, their major shareholder, to enhance the company's customer experience, operating performance, and portfolio growth. Now, I'll turn the call over to Tom. Tom Boyle: Thanks, Joe. We are leaning into our powerful compounding returns platform comprised of three components. Joe spoke to our industry-leading operations. all now speak to capital allocation and capital access. On capital allocation, we have accelerated portfolio growth with more than $1.1 billion in acquisitions and development already announced for this year. The acquisition opportunities are relatively broad-based across size, geography, and seller type, which were built to execute based on our relationships, data-driven underwriting, and capital structure. And we will continue expanding the high-growth non-same store pool through additional acquisitions and our $648 million development pipeline to be delivered over the next two years. We are utilizing our advantageous access and cost of capital to fund that growth. During the quarter, with ongoing support from bond investors, we issued new unsecured bonds for refinancing and to fund that growth at the tightest spread of REITs for the year. With leverage at 4.1 times net debt and preferred to EBITDA and approximately $600 million in retained cash flow this year, our capital position is very strong and poised to fund growth into the future. Now shifting to financial performance for the quarter and our increased outlook. In the same store pool, revenue growth came in as expected, increasing for a second consecutive quarter following three quarters of declines last year. Rental rates were up 0.6% which more than offset slightly lower occupancy. And that occupancy gap versus last year continues to improve, down 40 basis points versus down 80 basis points to start the year. And expense control was strong, leading to a better NOI outcome than we anticipated. Strong non-same store and ancillary NOI growth drove core FFO higher by 1.2% in the quarter. FFO growth accelerated 240 basis points from the level achieved during the second quarter of last year. In light of that performance, we lifted the low end of our 2025 core FFO guidance range from $16.35 to $16.45 per share, driven by an improved outlook for self-storage and ancillary NOI. All in, public storage is very well positioned to drive performance from our compounding returns platform comprised of leading operations, strong capital allocation, and advantageous capital access. 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. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. As a reminder, we ask that you please limit to two questions and requeue if necessary. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Michael Griffin with Evercore. Please proceed with your question. Michael Griffin: Great, thanks. Um maybe just first starting off on fundamentals wondering if you can give us an update on July operating trends maybe both from a rate and occupancy perspective and second as it relates to the guide you know it seems like you're trending above the revised midpoint at least year to date. So you know should we kind of interpret the back half of the year as a deceleration in fundamentals and has that changed your stance at all about you know potential recovery for for storage fundamentals? Tom Boyle: Sure. Thanks Michael. Um so starting with the first part of your question just in terms of how operating fundamentals have been through through the peak season here into July I'd say generally speaking um seasonal trajectory very similar to last year right in line with expectation the stabilization that we've been speaking to continues to play forth you know Joe spoke to some of the the strength in in many of our markets the west coast markets uh San Francisco San Diego Portland all putting a good kind of two to 4% same store revenue growth. Uh we continue to have uh certain markets like Atlanta and Dallas uh some of the Florida markets still working through the normalization process. Uh but we've been encouraged by some of the trends that we've been seeing through through the leasing season uh in those markets. Um for the quarter move in rents were down about 5% and as I noted occupancy did close the gap uh to down 40 basis points from starting the year down 80. Uh July trends have been relatively consistent um in terms of customer behavior. Rents are trending similar in July down call in mid single digits. Uh we ran a successful Fourth of July sale which will optically lower that uh statistically. Um but seeing good good customer traffic and behavior there. Occupancy gap continues to tighten uh today down about 30 basis points uh as we sit here today. Um the the the second part of your question related to guidance and kind of performance year to date. Um you know and as you highlighted we're seeing performance pretty similar to to what we've been expecting year-to-date. uh trends are a little bit above the midpoint on year-to-date performance in revenue, which is encouraging, and I think that's specifically what you're um uh getting at. I think the the second half a deceleration that's implied by that guidance uh I would point you to the discussion we've been having and Joe highlighted around Los Angeles and the Los Angeles impact from the fire related emergencies will be more felt in the second half as we've consistently highlighted uh and is the the contributor to that deceleration in the second half. That said, LA continues to be a fantastic storage market and one that we have a lot of confidence in over the medium to longer term uh and will rebound nicely when those fire emergencies expire. Michael Griffin: Tom, that's uh that's certainly some helpful color. Uh maybe switching next to kind of the acquisition pipelines and your color on deals closed year to date. looks like you did about $160 million uh in the second quarter with you know a healthy pipeline call it around $40 million under contract outside of that I I mean can you give us a sense of how the transaction market has been what kind of buyers and sellers out there are out there you know could we see incremental acquisitions on top of that $480 million set to close and then it looks like you've targeted a number of Sunbelt markets with your acquisitions uh so far this year obviously ly those have kind of felt more the brunt of the supply headwind. So curious if kind of the acquisition strategy is more getting ahead of a recovery in those markets or it's more submarket specific. Thank you. Joe Russell: Okay. Yeah, Michael, this is Joe. I'll I'll I'll take that and Tom's welcome to join in as well. Um first of all, just talking about the overall transaction market through year-to-date um tracking that we have seen nationally. Um it's up year overyear uh anywhere from say 10 to 15%. We'll see how that plays out um full year. Uh typically second half of year transactions are more robust than first half of year but uh to be determined. Um but we have seen again the amount of product coming into the market and the willingness of owners to transact into levels of value that we have seen appropriate actually increase. So that's been encouraging. has certainly been part and parcel to the amount of volume that we've done year to date that we've spoken to. We'll see how the rest of the year plays out. There are still very few larger portfolios coming into the market. And um those that have have had some level of friction relative to the amount of bidding activity and the value realization that um many of those owners have attempted to achieve both privately through many conversations we've had with them over the last even 12 to 18 months and then what we've even seen year to date. little tough to predict how things are going to go between now and end of the year, but what we've been able to do is unlock many of the things that we do very uniquely as Tom spoke about in his opening comments, which we have deep-seated relationships. Um, we are in active dialogue with a whole set of different types of owners, very different market um opportunities. And you know to that point and you know the the other part of your question um both intentionally and that what we've seen from the market concentration of activity it has been dominated by a number of markets more mid to east coast. Um what we do though is not aim and look for Sun Belt markets that may have um different dynamics tied to supply and or growth, but going right down to a submarket basis where we can use data to guide us to where we see unusual value opportunities. So we're very confident in the way that we've actually captured assets year-to-date based on all the tools that we have and the unique opportunities that we have to execute those tools. Um, a number of those transactions have been off-market. Um, and outside of two, I would say moderately sized portfolios, they've been p primarily dominated by one-off transactions. So, we'll see that how that continues to play through the rest of 2025. But we have been encouraged by the realization that many owners um have taken relative to cap rate expectations and value expectations and have uh frankly captured some uh good assets going into 2025. thus far. Unidentified speaker [attribution inferred]: So, where are we? Michael Griffin [attribution inferred]: You know, that was that was very Unidentified speaker [attribution inferred]: Yep. I'll hop back in. Unidentified speaker [attribution inferred]: You bet. Thank you. Operator: Our next question comes from Nicholas Yulico with Scotiabank. Please proceed with your question. Nicholas Yulico: Um, thanks. Uh, I guess I I just want to touch on the uh the move-in volume net of move-outs and you talked about that being slightly better um than last year. Uh can you just give us a feel for you know how much that you think that might need to pick up in order to help pricing on the um you know the move in side where you said you know it's been a little bit more competitive on move-in rates. Tom Boyle: Yeah. I mean we've seen consistent uh performance uh uh closing that occupancy gap with with move-ins doing better than move-outs really for the past year and a half. um and and would expect that to continue. In terms of the dynamic with move-in rents, I think there's a couple pieces there. One is our own uh strategies related to to what it is we're doing to drive revenue. Uh and so, you know, we do things like run sales and things like that periodically and and otherwise that are going to skew some of the numbers one way or the other. But the the ultimate um driver of some of this is overall industry demand. And we've been encouraged by uh industry demand that that really bottomed last year and is starting to recover. And I think it's going to take a little bit more time with that recovery before the industry overall uh starts to be in a position where we're we're driving move-in rents higher given the success we've had in using move in rents um uh at at a lower promotional levels over the past couple years. But I do think that that will will come here uh as we move move through the year and into next year continued narrowing of that uh move in rent gap and uh we we'll be really supported by that demand uh picture which we think is modestly improving off the bottoms from last year. Nicholas Yulico: Okay, thanks. And then second question is just uh going back to Los Angeles and um you know as a region it does feel like that market is struggling a little bit more than um some others in the US. Can you just talk about any other sort of trends you're seeing on the ground and and uh you know I mean I know you have the fire ordinance that's an impact but is there anything else you're seeing that's kind of pointing to uh you know near-term weakness uh in that region? Thanks. Tom Boyle: Yeah, know we were actually seeing pretty good strength across the whole West Coast and and even Los Angeles. I mean, you highlighted the rent restrictions, but you know, if you look at at Los Angeles in aggregate, if you look at Orange County, for instance, Orange County uh revenues were up 3% in the uh in the second quarter. Uh which just, you know, speaks to the strength that we're seeing really across the broad-based West Coast. Um but we are impacted by those rent related uh restrictions that um that are in place. uh but ultimately they will expire and we've got a lot of confidence both in our portfolio uh in Los Angeles as well as uh the the demand dynamics here in Los Angeles that will will uh return Los Angeles to a strong performing market here um in the future. Operator: Our next question comes from Ronald Kamden with Morgan Stanley. Please proceed with your question. Jenny (for Ronald Kamden): Hey, uh thanks for taking my question. Is Jenny on for Ron? Uh first is uh can you please comment on any markets that you think you become like incrementally more or less constructive? Any uh notable change in your underwriting approaches in those areas? Thank you. Joe Russell: Well, the good news is um again quarter by quarter we're seeing continued progression market by market where we've seen improvement in either um revenue growth itself or the change in revenue growth. So we're um continue to be encouraged by the amount of demand factors that are lifting each of these markets one by one. There's a whole host of markets that then also lead to our uh confidence relative to capital allocation. But that, as I mentioned, you know, in a prior question, really goes right down to a submarket by submarket basis where we're looking for ideal opportunities to invest into assets that are going to have the opportunity for us to put our own brand, our own operational um techniques and platform to improve performance as well. and we've been very encouraged by a whole host of markets that give us that that set of opportunities. So, um the landscape for continued investment is quite good um relative to the things that we have uniquely to drive and understand not only current conditions but you know changing and improving conditions market by market. Jenny (for Ronald Kamden): That's super helpful. Uh second is regarding operations. maybe talk a little bit more about if there's more room to automate or centralize operations like what could be the expected margin expansions like from those initiatives. Thanks. Joe Russell: Yeah, another very vibrant and robust uh part of the business that we uniquely are investing in and capturing all types of different levels of either a) optimization, b) cost savings, and then c) from an employee standpoint opportunities for uh different levels of specialization as we allocate for instance labor into properties where we can use analytics to determine the best place and location for our own employees to match customer demand. Um many of the things that we've been doing from a cost efficiency standpoint around our investment into solar for instance um to again optimize costs tied to utilities. Um and then from a scale and um concentration standpoint, the leverage that we continue to extract relative to the to to you know again the optimization uh and the way that we're running our properties uh day-to-day. So very encouraged by the um the the the amount of progression. Uh it's not over yet. We're seeing the ability to lift optimization that also ties to both revenue and expense control. um while also preserving if not enhancing both customer and employee satisfaction. So the uh entire opportunity that we see there uh continues to grow and we're very confident we've got more to do. Jenny (for Ronald Kamden): Perfect. Thanks so much. Unidentified speaker [attribution inferred]: Thank you. Operator: Our next question comes from Jeff Spector with Bank of America. Please proceed with your question. Jeff Spector: Great. Thank you. First question on the same store revenue growth uh guidance it's still fairly wide -1.3% to +0.8% can you talk about the various scenarios or key drivers uh bottom end versus top end thank you Tom Boyle: yeah sure Jeff I I' I'd point you to the same guidepost frankly that that I did earlier in the year um you know the year has played out uh largely in line with our expectations and So would would point you to guideposts of you know higher occupancy from from here to the end of the year in the high-end case um with move in rents probably narrowing to say down 3% on average. So some improvement there on moving rents the low-end case being uh modest drops in occupancy from here uh as well as moving rents declining through through the second half. Um, so, you know, while the the probability of those high and low-end cases may have come down a little bit, we felt like they were still the the right guideposts for investors to be able to to to gauge performance. Jeff Spector: Okay. Thank you. And then my second question is on street rate. Just curious into July, how are operators using street rates to manage occupancy versus demand? know how I guess if you could talk about just the current pro environment discounting promotional activity. Thank you. Tom Boyle: Yeah, pretty consistent. I would I wouldn't point you to anything meaningfully changed uh here in July. Jeff Spector: Okay, great. Thank you. Thanks. Operator: Our next question comes from Eric Luebchow with Wells Fargo. Please proceed with your question. Eric Luebchow: Uh great. Appreciate it. Um, I guess as you look at the back half of the year, um, I guess what type of seasonality are you really expecting into the slower months? The last couple years it's been pretty competitive on on moving rate across the industry, uh, into the slower months and and, you know, are you optimistic that we won't see the love the same level of price competition to try to maintain occupancy? Uh, any thoughts there be helpful? Tom Boyle: Yeah, I think our expectation coming into this year is we'd see pretty similar seasonal trends this year as we did last year. Uh and I I would stick to that into the back half as well. Um and yeah, it continues to be competitive for new customers. I think that's a a dynamic within our industry that that's been tried and true for a long time. Uh, and so, you know, different operators are going to use different pricing and promotion tactics, but we're certainly well equipped to to utilize ours and and drive traffic to our public storage sites around the country. Eric Luebchow: Great. And as as you think about kind of leveraging move and rent versus promotional discounts versus marketing spend, you know, promotional discounts have been down uh year to date versus last year um and your marketing spend was up a bit in the quarter. So, just year-over-year. So, how should we think about the interplay of those uh and your ability to hit your uh your occupancy targets this year? Tom Boyle: Yeah. Well, I'd say big picture, we don't have occupancy targets. We're looking to maximize revenue. And you highlighted the the three different levers that we utilize day in and day out being marketing, promotions, and moving rental rates. Uh we'll continue to do that. that that's an analysis that's done very granularly at a a product site um level at at the property and we'll continue to utilize those tools to maximize revenue over time. Eric Luebchow: Thank you. Tom Boyle [attribution inferred]: Thanks. Operator: Our next question comes from Eric Wolfe with Citi. Please proceed with your question. Eric Wolfe: Thanks. Just wanted to follow up on on LA. It seems like you're expecting around negative 6% same store revenue growth in the second half versus call it flat in the second quarter in the first half. Is there anything that could sort of cause that prediction to to be materially off one way or the other? Um or is it somewhat just sort of math and certainty that that you'll end up close to that level? I'm just trying to understand sort of the volatility of outcomes that could happen in LA in the back half of the year. Tom Boyle: Yeah, sure, Eric. I I think that there's a couple components to that. One is uh overall um you know the impact of the the the state of emergency pricing restrictions on our ability to send rental rate increases to existing customers. And I'd say that component of the impact is is pretty well defined uh because we understand, you know, our customers that are in place and and they're likely vacate as well as rental rate increase uh cadences. So I' I'd say that that component is relatively um uh more more known as we move into the second half and that's the biggest contributor to the decline in performance as we move through the year as that impact of rental rate uh caps um accumulates through the year. The other component though is just the strength of overall demand and and customer behavior in Los Angeles and and that is more variable and I'd say we've generally been uh pretty encouraged by by customer demand in Los Angeles uh as well as just broadly across the West Coast as I highlighted earlier. Uh it's not an LA County thing but I I mentioned earlier that Orange County is performing particularly well. Obviously not impacted at all by by these um emergency restrictions. So that is a little bit more variable. Uh and um we'll ultimately report on on Los Angeles as we move through from here. Uh but I think you you characterized it um well in terms of our expectations for the back half. Eric Wolfe: That's helpful. And then I guess uh maybe difficult question but um to the extent that the the restrictions are lifted next January, how quickly do you think you could sort of capture u that lost revenue back? Tom Boyle: Yeah. No, that that's a a great question and that is something that um we obviously have some experience in doing. Uh we've had uh emergencies expire um in the recent past and and had a lot of success in reacelerating revenue in Los Angeles and uh we'd anticipate using utilizing a similar playbook which is you immediately following those restrictions that we will likely see uh an opportunity to send those rental rate increases to those we haven't been able to. uh and you'll see revenue accelerate uh in the months following the the emergency expiration and and then you'll see that probably play out in this instance maybe over the course of a year. Uh in the last instance it probably took more like a year and a half, two years, but that's because that emergency was in place for for longer. So we'll ultimately uh need to judge that get to that point early next year. Unidentified speaker [attribution inferred]: Thank you. Operator: Our next question comes from Spencer Allaway with Green Street Advisors. Please proceed with your question. Spencer Allaway: Thank you. Um, can you just talk about what's driving the increase in guidance for the non-store pool? Um, have those been leasing up faster um than expected or is it just more on the rate side? Tom Boyle: Yeah, great question. I I break it into two components. Uh one is a strong performance from the non-same store pools that are in lease up in particular the development and expansion properties had a very good start to the year uh leasing up ahead of our expectation which I think just just um you know further reinforces the the environment for new customers is is stabilizing uh and and modestly improving from here. So that's a uh encouraging statistic that that those lease up properties are ahead of expectations. And then the second component is the new acquisitions that uh we've closed on or intend to close on through the back half of this year uh as disclosed also increase that uh from here. I Tom Boyle: maybe the last piece Spencer just to highlight is we did also increase the outlook for the amount of NOI to be achieved in 26 and beyond from that pool and Joe highlighted that in his prepared remarks from $80 million to $110 million. So we're refilling this high growth non-same store pool that not only will have an impact on this year but importantly will have an impact on future year growth as well. Joe Russell: Yeah. And maybe just to add one more um component Spencer to the configuration of the non-same store. So about a hundred of the 540 or so assets that are in the non-same store are uh you know developed assets or expansions that we've intentionally put into markets. Um, and to your question, we're seeing very good lease up, but those assets can take some additional amount of time to get to stabilization, which is all very powerful. So, again, about 20% of the non-same store is actually tied to our, you know, very intentional development activities as well that uh give us over time the highest returns on capital. So, again, continue to be very encouraged even with assets that we put into the market over the last year or two. Spencer Allaway: Okay, that's very helpful. Thank you. Um, and then specific to California, um, we've seen more attention being brought to potential rent control as well as price pricing transparency. Um, and while I realize no rent control bill has actually been successful in passing, does the recent push from California legislators change how you view um, you know, your exposure to the state mid to long term? Joe Russell: Sure. the um you know the thing that we do nationally just to step back is we do keep a very close watch on any legislative efforts that are um potentially gaining either attention or traction um that could impact the business. um California uh can be prone to that kind of activity. And you know, to your question, um you know, we we keep a very close eye, you know, on uh the variety of things that may be contemplated legislatively or otherwise within the state. You know, we take a very proactive posture when and where we see those kinds of activities. In the case of California, which we do um more typically when any of those kinds of events take place um you know we're not uh independently um engaging with andor formulating any type of reaction or response. We're going to be doing that with industry partners including you know the National Storage Association etc. Um, you know, most recently the efforts that were taking place here in California ended up being um, you know, basically successful around um, taking a set of initiatives um that initially had price controls tied to them and then coming up with a solution that was um, alternatively geared toward disclosure. So we felt that that was a fair compromise and aligned with you know the interest interests of the industry and you know in our particular case as well um we felt that that was a good compromise. So this is just something that you know we continue to monitor. Part of this is the continued education and advocacy even you know through you know different political bodies of you know the way our business works, the way promotions and then rate increases typically take place. How that um does have you know a good match relative to customer attraction meaning you know it can be very advantageous to the way customers look at acquiring spaces and holding it holding those spaces long term. So we continue to look at all those ways to continue to educate legislative efforts and frankly more often than not those become very sensible to them and they've given us a good um foundation to continue to you know move forward when and if these um events take place. So we're going to continue to stay focused on that again with our our partners nationally and uh we'll go from there. Spencer Allaway: Excellent. Thank you. Unidentified speaker [attribution inferred]: Thank you. Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question. Todd Thomas: Hi, thanks. Um, I wanted to ask about the development and lease up pool um, a little bit more. I was wondering if you can discuss how the newer vintage projects are trending versus underwriting and comment on stabilization time frames and and NOI yields as you reforcast um, those those projects. And then are you underwriting new projects today uh in either the in-process pipeline or planning any differently for for new developments going forward? Tom Boyle: Yeah, thanks Todd. Uh so a number of components there. First just starting with reiteration of what I mentioned earlier that the the lease up and and trajectory of the recently delivered acquisitions and expansions continues to be robust. uh and you can see that in our non-same store disclosure in the SUP uh in terms of seeing good good traction there uh for lease up and and they are tracking a little bit ahead of of our performance to date which is encouraging. The the overall targets for for yields that we're looking for for those sorts of developments and uh expansions are typically in the 8% plus or minus yield on cost. And that's something that if you look uh in the sub you can see we've consistently uh hit or exceeded over time uh and have a lot of confidence in these recent vintages in terms of you know how we're looking at the the program overall going forward. While the overall industry continues to face headwinds and and we're not immune to that related to, you know, longer timelines in certain jurisdictions, higher cost um associated with component parts uh and financing costs. We do have some pretty unique capabilities uh vis-a-vis others building self-storage facilities in the fact that you we can purchase nationally given the breadth of our program uh our in-house team and and the relationships that we can build around the country and obviously our balance sheet and ability to to fund this uh program largely with retain cash flow uh today. So while the the rest of the industry volumes for for new development we anticipate to decline this year um we're going to have a relatively strong year for um for deliveries about $370 million delivering this year. Uh and while we haven't provided any guidance for next year would anticipate north of $300 million for deliveries next year as well. Kind of maintaining our kind of $300 to $400 million uh pace of development deliveries uh from here. Todd Thomas: Okay, that's helpful. And then I wanted to go back to some of the discussions around uh markets and that performance gap between um you know various various markets on on the west coast and and Chicago and a few others uh that you mentioned relative to um you know some belt markets that are still normalizing like Atlanta, Dallas and some of the Florida markets. Are are you seeing any indication of stabilization in those more challenged markets? any sense how far you might be um from sort of a bottom and and what the timeline for those markets to recover more meaningfully might look like? Joe Russell: Yeah, Todd, I mean, again, on a case-by-case or market-by-market basis, you're going to see different trajectories. Um you mentioned Atlanta, for instance, Atlanta's um in probably one of the toughest spots at the moment. Fair amount of supply. Um and again not the amount of demand coming through as quickly you know to um again either shore up or stabilize that supply. Um we have been alternatively encouraged by the turning set of events for instance in Florida. You know Florida was a high flyer through the pandemic if in fact the highest flyer. um it had uh the commensurate impact from again those trends reversing but again on a market-by-market basis through Florida we're actually seeing you know a good set of performance factors good stabilization and now in you know a number of markets within Florida we're seeing uh the not only revenue growth but the change in revenue growth uh trend favorably so the um the the trajectory from a national standpoint is positive. Um there are three, four or five markets that we're keeping a very close eye on. I mentioned Atlanta, uh Dallas, uh Phoenix, you know, Charlotte, for instance. Those are ones that we're keeping a particularly close eye on as we speak. Um but we have been pleased by the turnaround that we've been seeing now quarter to quarter, frankly, for the last 18 months or so. And uh we don't see that changing. Todd Thomas: Okay. All right. Thank you. Unidentified speaker [attribution inferred]: Thank you. Operator: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good morning. Thanks for taking my questions. Uh first question is on the new customer. What are you seeing in terms of top funnel demand? It sounds like uh first half was a little bit ahead of last year. are just trying to get a sense of what what the funnel looks like and you know along those lines are you're continuing to run promotions and and marketing spend was up year-over-year. So is is the customer reacting to these different uh factors the same way they have in the past? Tom Boyle: Yeah, there's there's a lot there to unpack, Michael, but I I guess I'd say overall, as you highlighted, um we are seeing modestly better demand this year versus last year, which is another sign of stabilization that we're seeing in the business. Terms of customer behavior itself, pretty consistent trends. Our conversion has been healthy. Reactions to promotion and pricing tactics has been consistent with what we'd expect. So, our our revenue management and marketing tools are working working well. and we're utilizing those to to seek to optimize revenue from new as well as existing customers. I know you didn't ask about existing customers, but I might as well highlight that because Unidentified speaker [attribution inferred]: going next time. Tom Boyle: Good. All right. Well, we're doing it together. So, existing customers actually performing quite well uh year to date. You know, second quarter, we saw um really strong performance from longer-term tenants, for instance. That's something we were watching very closely coming out of Liberation Day to see if there would be any shift in behavior and encouragingly we saw vacate activities diminish. Um we've seen delinquency levels be consistent frankly a touch better year-over-year. Uh and uh as well as um you know accepting of rental rate increases. So as we think about the customer base overall uh continues to be a bright spot um for us as we sit here today. Michael Goldsmith: Got it. Then since you covered that uh as my followup, you know, there's been a series of uh residential uh real estate earnings uh this week and today and turnover on the apartment side and on the multifamily side has remained relatively subdued. Like do you see that as a good thing for self storage or or is that bad? is there's just less movement. And you know, on the one hand, it could be good in that the, you know, the apartment customer is staying in place and so continues to use storage as a uh um as an extension of their apartment, but also it could be seen as bad because there isn't a turnover moving to a home, which drives a a different type of demand. So, h how would you interpret uh lower apartment turnover and the impact on self storage? Joe Russell: Yeah, Michael, it actually speaks to the resilience and the unique attributes of self storage, we actually can benefit by, you know, any of those events and currently are. So on one end of the spectrum, apartment users that may be stickier, maybe may not be moving as often, that could be tied to affordability or um having um less options to expand or you know take an additional size living space plays very well to the inherent demand factors of our business. And then to your other point um if there's some amount of dislocation because of movement itself that's always a driver to our business. So the affordability factor took place here which again self storage is commonly looked at as a sensible way of buffering higher cost of living or higher cost of shelter. So that too is an inherent driver as we've spoken to for some time. We have a high percentage of renters in our portfolio and they're great customers. Um all those factors lead to um very similar lengths of stay. I wouldn't say in any way we have an overarching concern about uh the type of customer because in fact they may be a renter. In fact, uh most renters end up being very good customers particularly after they stay for uh some period of time. So all those factors are good inherent drivers to our business. Michael Goldsmith: Thanks for that. Good luck in the back. Unidentified speaker [attribution inferred]: Thank you. Joe Russell [attribution inferred]: Thanks Michael. Operator: Our next question comes from Ravi Vaidya with Mizuho. Please proceed with your question. Ravi Vaidya: Hi there. Uh thanks for taking my question. I wanted to follow up on the ECRI program. Maybe can you quantify the average rate increase and maybe how has changed from last quarter and last year in terms of frequency and amount? Tom Boyle: Thanks, Ravi. We don't typically quantify uh frequencies or specific magnitudes, but we do disclose uh information that allows folks to get to the contribution from from existing customer rent increases. And as I highlighted on our February call when we came out with our outlook, I'm anticipating contribution from existing customer rent increases uh across the country to largely be pretty similar to last year. Uh but given the rent restrictions in in Los Angeles uh which will uh drive less contribution year-over-year, overall modestly lower contribution uh from the full national pool. Um, we continue to see um, uh, customer price sensitivity that's very much in line with our expectations and and predictable behavior and reaction to to our our tactics on the ground. Um, and a a stable number of customers that are uh, requesting some sort of concession after they receive an increase. So, I'd say overall uh, very consistent trends and and right on plan. Ravi Vaidya: Got it. That's helpful. Just just one more here. Can you maybe discuss the impacts of the the Big Beautiful Bill? Does this further encourage your development pipeline given the bonus depreciation provision or do you forecast home sales increase and subsequently self-storage demand given the SALT property tax adjustments? Maybe just walk us through how you're thinking about uh the recent legislation there. Tom Boyle: Yeah, sure. There's a couple components there that I'd highlight. Um you hit on some of them. I think the uh the full impact of the bill will will will be felt across the the macro I think over time. But I think specifically to public storage, there's two things I'd highlight. Uh one of them relates to our solar program. So we've been very active in uh investing in solar uh for rooftop generation to offset our own utility usage. And that's something that we've had a robust pipeline on. Um, and our pipeline is is set to complete here over the next several years. And so we're fortunate that we started that program and and really accelerated over the last several years to take advantage of the incentives that were in place and that will no longer be in place uh going forward. So we feel good about that and that will be a tailwind to our expense profile as we reduce our utility expense um and our carbon footprint over the next several years. Um so that that's a um a negative impact over the longer term but won't impact us on the near term in our current pipeline. The the second component relates to bonus depreciation as you're highlighting and and bonus depreciation is something that we've we've taken advantage of consistently over the past decade or so. uh that bonus depreciation was starting to to sunset. Uh but with the new bill, we'll we'll come back. And so that's an opportunity for us to continue to retain u incremental cash flow over time and reinvest it into our development business as well as acquisitions. And that um reinvestment into the business helps drive our compounding return platform. Ravi Vaidya: And uh maybe just about the the SALT provisions and and home sales, are you seeing anything from that with demand? Tom Boyle: No, we haven't seen anything like from that yet. Uh obviously we'll see the broader macro impacts as we go from here. Ravi Vaidya: Got it. Congrats on the quarter. Tom Boyle: Thanks Ravi. Operator: Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question. Juan Sanabria: Hi, good morning. Uh just first on acquisitions, just curious on cap rates or yields uh going in for what's uh been done to date and kind of what's planned for the remainder of the year as well as kind of a longer term more stabilized um expectation for those investments. Tom Boyle: Yeah, thanks Juan. I' I'd point you to pretty similar cap rates to what we've been seeing over the last 12 months or so. Uh generally uh transactions are are trading hands with kind of going in yields in the fives uh ultimately getting into the sixes. Uh the portfolio um activity and small individual assets that we've done year-to-date are right in line with that. Um that we did do some lease up asset acquisitions as part of this uh component. But even with that, I'd characterize of the $785 million, the going in yield is probably um five and a quarter sort of zip code uh ultimately stabilizing in the sixes. Juan Sanabria: Thanks. And then just uh on the ancillary part, which is uh done better than expected, you called that tenant insurance. Just curious what's changed there. Is there um maybe more pricing power or uh just curious on what's driven that outperformance on the ancillary and particularly ten insurance? Tom Boyle: Yeah, we continue to see really strong adoption from the tenant insurance uh program itself. So um overall coverage levels are trending higher and have been over the past couple years. Uh in addition to that, premiums have also moved higher. So kind of on both sides of the the stabilized uh store base and then obviously adding new properties into the non-same store portfolio will will further increase the opportunity for the tenant insurance business uh along with our third party management platform. So um that that business is really hitting on all cylinders um in 2025. Juan Sanabria: Thanks. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi, good morning. Um, back in the prepared remarks, you guys brought up how you're positioned to grow internationally. So, I guess we'll see what happens in Australia. I was wondering if you could go through what benefits you think the Shurgard exposure gives PSA overall. Um, and do you expect to pursue additional international opportunities? Joe Russell: Uh yeah, Caitlin, the thing that I highlighted in opening comments around our relationship with Shurgard has been very powerful where we've had a opportunity to um, a) learn how many of the tools they've selected from our own platform have been opportunistic for them in a whole host of Western European countries uh country by country with many different types of dynamics. But it's been a great opportunity for us to see, understand and work with um you know again a platform like that that could take those kinds of tools that we're developing here in the US and implement them uh one by one at their election into their own platform. So for many years we've seen the opportunity how we've been able to optimize and see that integration in markets not here in the United States. Um with that it's given us more confidence that for the right set of circumstances other international markets may also be equally if not better prepared to achieve the same kind of optimization using the tools that we've been able to develop here in the United States. We think that that's very similar. For instance in Australia and New Zealand um you know as you know we've had an inherent interest in that market for some time over the last you know five plus years. uh this opportunity um again is very attractive for many of those exact same reasons. Um the partner who controls the entity uh is very attracted to the things that again have played forth relative to our relationship with Shurgard and we'll see how this plays out as uh that opportunity um progresses step by step that you know we'll give you some color on as we're able to. But with that to your question, it does give us not only the skill but the confidence and knowledge of how a) complicated but how b) efficient some of these tools can become in different markets. It's not a static set of playbook opportunities, but it's one that if it's tailor tailorable to a particular market can be very powerful. So, we'll see how that continues to play not only in markets like New Zealand and Australia, but um over time potentially other markets as well. Caitlin Burrows: Got it. Thanks. And then I guess this bigger picture back to the US. You've talked about same store stabilizing um that you think demand bottomed in 24 and should continue to improve. You also talked about that uh storage industry should be able to outperform in a variety of economic environments. So, I guess I was wondering if you could just give your current thoughts on what you think it takes to get um like a stronger improvement and get on the same store side like positive growth whether that's uh well positive or like inflationary plus on the revenue or NOI. So, like is it the housing market? Is it less supply or do we not really know at this point? Thanks. Tom Boyle: No, good question, Caitlin. I I do think we've seen that stabilization. And I think as demand continues to to grow off that 24 base, you're going to see uh more momentum and and we've already seen that across a number of our markets, right? If you look at the West Coast markets, for instance, that that Joe and I have been speaking to on this call, starting to see that sort of growth already, which is encouraging. We've got a lot of confidence in the Sun Belt markets that have taken a little bit longer to normalize. But if you think about an environment where demand is coming off a base, you've got new supply that is likely to continue to taper off given the challenges in the development business I spoke to earlier. Um and you've got a um a situation set up for a return to to stronger growth for the sector. Is that going to happen overnight? No. Uh and as we've seen, the stabilization process will take some time um to to get back up to those levels of growth. Uh but we've already seen it in many of our markets and so we have confidence that around the country uh that's to come. Caitlin Burrows: Thanks. Operator: Our next question comes from Ki Bin Kim with Truist Securities. Please proceed with your question. Ki Bin Kim: Thank you. Good morning. Uh just going back to the impact of the LA wildfires. In the beginning of the year, you estimated about 100 basis points dragged here. Uh, but given the the strength in the West Coast, and I think we say the same beta, LA looks pretty strong. Do you think that drag is actually potentially bigger than 100 basis points? Tom Boyle: Um, Ki Bin, we'd still point you to the 100 basis points impact and and would uh point you to LA being plus or minus down 3% same store revenue for the year. So, around that 100 basis points number today. Ki Bin Kim: Okay. And uh on the call you mentioned that 2Q pretty much ended up where you thought it would. Um but when we look at the pace the pace of improvement from 1 Q to 2Q you know it does seem like it just lost a little bit of steam. It's just one quarter. I get it but it wasn't the same pace. Um, so I was just curious did uh something was there a macro factor or a change in some behavior that occurred during the quarter where that pace of improvement just looked a little bit softer than the prior quarter. Thank you. Tom Boyle: Thanks, Ki Bin. And I wouldn't characterize it as uh seeing any sort of uh uh losing steam or or any shift during the quarter. it was pretty consistent throughout the quarter and and uh generally in line with our expectations. So I I wouldn't point you to the to that as a as a something that occurred during the quarter, frankly. Ki Bin Kim: Okay, thank you guys. Tom Boyle [attribution inferred]: Thanks. Operator: Our next question comes from Mike Mueller with JP Morgan. Please proceed with your question. Mike Mueller: Yeah. Yeah. Hi. Most of the uh 2Q stuff's been asked, but I'm curious when when you have digital rentals versus in person or from call centers, do you generally get the same amount of customer data that you would get at, you know, that helps you formulate pricing and marketing strategies? Joe Russell: Yeah, go ahead. Well, I was going to say that to your question, Mike, it uh all of those channels give us a whole variety of robust data and we are uh continuing to use different tools to leverage that data relative to customer knowledge and behaviors and efficiencies. So it you know it's a vibrant amount of the business that time and again channel by channel as we digitize we see you know very good um residual impact and knowledge opportunities Tom Boyle: and the more digital interactions we have the more data uh we can get as it's as simple as that. Mike Mueller: Got it. Okay. Thank you. Joe Russell [attribution inferred]: You bet. Operator: Our next question comes from Tayo Okusanya with Deutsche Bank. Please proceed with your question. Tayo Okusanya: Uh yes, good afternoon. Uh just a quick one in regards to your your your markets that are outperforming as you mentioned West Coast, Midwest, DC. I just youatically [The recording ends here, mid-question.] — END OF TRANSCRIPT —