Extra Space Storage Inc. Q4 FY2025 earnings call

• Delivered positive core FFO in Q4 (2.5%) and full year (1.1%) despite challenging environment. - Experienced increasing new customer move-in rates, 16 of top 20 markets had positive Y/Y move-in rates to new customers and sequential revenue growth improvement, same-store revenue growth positive 0.4% in Q4. - Deployed capital strategically: repurchased shares, closed on operating stores, executed JV-related transactions, originated bridge loans, added third-party managed stores. - Same-store operating expenses had improvements in property taxes and property operating expenses, but offset by other costs. - Low leverage balance sheet strong with fixed rate debt and commercial paper program saving interest expense.

In the fourth quarter, same-store revenue growth returned to positive 0.4%. Full year core FFO growth was 1.1%. In the fourth quarter, 16 of top 20 markets had positive year-over-year move-in rates to new customers. Deployed capital in various channels: repurchased ~$141M of common shares, closed on 27 operating stores for $305M (full year 69 stores for $826M), executed JV-related transactions, originated $80M in bridge loans (portfolio ~$1.5B at year-end), added 78 third-party managed stores (net growth 45 in quarter, full year 379 stores and 281 net new to program, total managed portfolio 1,856 stores). Same-store operating expenses increased 1.1%, with property taxes down 3.4%, property operating expenses (including utilities) down over 5%, partially offset by higher health care costs and elevated marketing expense. Same-store NOI growth 0.1% for the quarter. Low leverage balance sheet strong with 93% of total debt at fixed rates, weighted average interest rate 4.3%, commercial paper program launched in Dec 2024 saved over $3M in interest expense.

2026 same-store revenue guidance: negative 0.5% to positive 1.5%. Expense growth range: 2% to 3.5%. Same-store NOI range: negative 2.25% to positive 1.25%. Core FFO range: $8.05 to $8.35 per share, midpoint flat Y/Y. Assumes average bridge loan balances generally flat vs 2025 and most 2026 acquisitions in joint venture structures.

Potential headwinds from regulatory environment, including proposed or attempted regulation like price caps in some jurisdictions. Health care costs as a headwind for expenses. Uncertainty around macroeconomic factors not factored into guidance, such as housing market recovery. Also, the impact of lease disclosure legislation changes and how it may affect leasing activity. Risks related to the execution of growth strategies, including the success of joint venture transactions and the ability to optimize the portfolio through asset sales.

Q: On same-store revenue guidance, midpoint implies generally flat growth compared to Q4 2025 exit. How to interpret?

A: Range recognizes factors that could cause acceleration or deceleration, with midpoint generally flat based on trends of steady occupancy, new customer rate growth, and gradual compression of roll down between move-out and move-in customers.

Q: Update on street rate trend through Jan and Feb?

A: First 45 days of year continue Q4 trends, mid-February occupancy 92.5% (40 bps down Y/Y), rates to new customers slightly over 6%.

Q: Confidence in lower expense range for 2026?

A: Property tax normalization from 2025's outsized increases, insurance midyear renewal expected to improve, and other line items with cost containment and efficiencies.

Q: Acquisition volume guidance lower than last year?

A: Most 2026 acquisitions expected in joint venture format to enhance returns, plenty of capital to execute if opportunities arise.

Q: Transition of street rates improving to same-store NOI?

A: Takes time as only 5%-6% of customers churn monthly, property taxes in some markets being a factor in NOI.

Q: Health care costs impact on expenses?

A: Still a headwind, but savings in general payroll and staffing mute it to some extent.

Q: Senate Bill 709 in California impact?

A: No tangible change in leasing activity as disclosure was already robust and now level playing field.

Q: Macro drivers for storage industry?

A: Job growth, especially in Sunbelt markets, and incremental reduction in new store supply.

Q: Interplay between rate and occupancy for revenue?

A: Algorithms price units daily, decisions made on unit type by unit type basis in each building.

Q: Regulatory environment impact?

A: New York litigation, but generally disclosure legislation more common, with robust disclosure at Extra Space.

Q: Same-store revenue guidance and move-in rate growth?

A: Lapping comps becomes more difficult in back half of year, range recognizes factors like occupancy, rate, and LA County pricing restrictions.

Q: Discounting strategy?

A: Channel-based, online seldom offers discounts, selective in stores based on unit type occupancy.

Q: AI use?

A: External use in SEO-like factors, internal use in pricing models, marketing spend, software development, call center.

Q: Revenue growth forecast seasonality?

A: Gradual, slow and steady growth, seasonality may impact 10-20 bps either direction.

Q: Market performance recovery?

A: Gradual, market performance cyclical, diversified portfolio smooths return series.

Q: ECRI strategy?

A: Not disclosing specifics, but contributions expected generally similar with LA County caveat.

Q: Portfolio optimization and asset sales?

A: Sell small number of properties annually to optimize portfolio, 2025 sales part of original plan.

Q: Supply expectations?

A: Incremental reduction in new stores delivered, Yardi data considered but projects sometimes canceled, markets like Sunbelt have oversupply issues.

Q: Confidence in 2026 vs 2025?

A: Turned corner on new customer rates, supply situation helped, but cautious until leasing season is known.

Q: Operating platform and people?

A: Store managers important as customers still want to interact, looking for efficiencies but not eliminating store managers.

Q: Operating expense guidance?

A: Marketing as variable expense, property taxes and insurance as key drivers, other items inflationary.