Public Storage Q3 FY2025 earnings call

• Public Storage's third quarter results reflect differentiated strategies driving outperformance, with industry trends like operational stabilization, lower new supply competition, and increasing acquisition activity. • Raising 2025 outlook based on same-store and non-same-store NOI growth, acquisition volume, and core FFO growth per share. • Industry leadership is proven by highest revenue per square foot, most profitable operating platform, strongest portfolio expansion, highest retained cash flow, and FFO growth exceeding stabilized same-store growth. • Operating innovations include industry-leading omnichannel customer experience with 85% of interactions and transactions digital, modernizing field operations with AI reducing labor hours by over 30%, and deploying new technology-based strategies across the organization for revenue and expense control.

Public Storage's third quarter results show same-store revenue up 0.6% but offset by lower occupancy. Outside the same-store pool, the high-growth non-same-store pool drove core FFO per share higher by 2.6%, a 560 basis point acceleration from the third quarter of last year. Same-store NOI growth was better than anticipated. The same-store segment contributes to the overall performance, while the non-same-store segment has been a key driver of FFO growth.

• Raised 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. • Adjusted full-year guidance to reflect positive trends with increased outlooks for same-store revenue, same-store NOI, and non-same-store NOI. • Fourth quarter has tough comps: property tax is a tough comp due to healthy refunds last year, and Los Angeles impact on same-store revenue will grow as the year progresses.

• Competitive operating environment for new customer move-ins. • Tough property tax comps in the fourth quarter. • Uncertainty around Los Angeles pricing restrictions and their impact on performance.

Q: As we get closer to year-end, could you talk about the process of setting budgets for 2026?

A: We're continuously forecasting and updating, using data-driven processes, historical trends, predictive analytics. It's a robust process across all functions, challenging teams for new initiatives.

Q: How do you think about trends recently, like getting closer to normal run rate growth?

A: We see steady stabilization, with demand bouncing off 2024 lows, new supply continuing to come down, and strong markets like the West Coast growing at 2%-4% same-store revenue growth.

Q: Curious about new customer behavior and move-in rents?

A: Focus on revenue as the most important metric, which is a combination of move-in rents, volumes, move-out activity, existing customer behavior, and rent increases. Competitive environment for new customer move-ins, but focused on driving revenue through platform investments.

Q: On revised guidance and fourth quarter implied guidance?

A: Fourth quarter has tough property tax comps due to last year's healthy refunds, and Los Angeles impact on same-store revenue will grow as the year progresses.

Q: Thoughts on LA and pricing restrictions?

A: Pricing restrictions are in the hands of the Governor, decision time frame is early January, with no specific negative color beyond it being out of control currently.

Q: Expectations for supply and development activity?

A: Supply delivery momentum continues to go down, fewer developments due to entitlement complexity, cost structure, and risk. Public Storage has unique capabilities to underwrite and find development opportunities, with lease-up of recent developments pacing ahead of expectations.

Q: Top of the funnel demand and LA impact on same-store revenue?

A: No indication of slowing demand overall, but LA's rental rate restrictions will hold back same-store revenue in the fourth quarter. Non-same-store pool set to accelerate due to capital allocation activities.

Q: Acquisition pace, cap rates, and returns?

A: Active acquisition quarter with a mix of stabilized and non-stabilized assets, unique capabilities to underwrite, expecting good returns from invested capital in assets.

Q: Operating trends through October and LA impact?

A: New customer activity down 9% year-over-year, October doing slightly better, move-in rates down but volume up. LA performance trending better than年初 expectations, down 1%-2% for the year with less vacate activity and good customer activity.

Q: NOI upside from mom-and-pop acquisitions and AI impact?

A: Margin advantage of 10% for acquired assets, continuing investments in platform drive performance, anticipating continued margin enhancement.

Q: Acquisition pace into 2026 and appetite?

A: Improving transaction market and debt market trends set up for more active volumes, strong appetite, excited about potential increased activity.

Q: Technology impact on expenses and future?

A: Technology has had big impact on expenses, with more room to grow, only just begun with meaningful investments across the company, 85% of customers transact digitally now.

Q: LA impact on overall portfolio and cap rates?

A: LA's impact on overall portfolio is less than initially expected, with cap rates for investments around 5.25% going in, stabilizing into the 6s when plugged into the operating platform.

Q: Lease-up properties and non-same-store NOI guidance?

A: Confident in lease-up of properties at various stages, non-same-store NOI guidance increase reflects better performance of previously owned and newly acquired assets, with incremental NOI from '26 and beyond updated to $130 million.

Q: Marketing spend and top-of-funnel demand?

A: Consistently use marketing tools to optimize revenue, focus on revenue metric rather than individual line items.

Q: Strong markets move-in rent comparisons and customer pushback on ECRI?

A: Strong markets have better move-in trends, existing customers perform well with consistent price sensitivity, no shifts in customer pushback on ECRI.

Q: Evaluation of labor cuts and housing-related demand?

A: Labor cuts evaluated using customer interaction and service as guidepost, data-driven tools for predictability, housing demand relatively stable with lower mortgage rates but no immediate meaningful shifts.