Public Storage

Greetings and welcome to Public Storage's third quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. To enter the question queue at that time, please press star 1. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Burke. Thank you. You may begin.

Thank you, Rob. Hello, everyone. Thank you for joining us for a third quarter 2025 earnings call. I'm here with Joe Russell and Tom Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. All forward-looking statements speak only as of today, October 30th, 2025, and we assume no obligation to update, revise, or supplement statements that become untrue because of subsequent events. A reconciliation to GAAP of the non-GAAP financial measures we provide on this call is included in our earnings release. You can find our press release, supplement report, SEC reports, and an audio replay of this conference call on our website, publicstorage.com. We do ask that you initially limit yourself to two questions. Of course, if you have more after that, please feel free to jump in queue. With that, I'll turn the call over to Joe.

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 and excess of stabilized same-store growth driven by our compounding returns platform. We have been actively advancing the pillars of this platform, which include 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 and 85% of their interactions and transactions with us. Second, with this 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 onsite 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.

Thanks, Joe. We are leaning into our platform strengths. 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 with 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 positions. 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.

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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. As a reminder, we ask that you please limit to two questions. 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 Eric Wolf with Citi. Please proceed with your question.

Hey, 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 and sort of how you go about determining things, like where moving rents could go, occupancy, and sort of all the main variables that are going to make up growth for next year?

Yeah, sure. 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 2026 process, something we started several months ago, and people are forecasting their businesses. In terms of some of the line items you spoke to, you know, we're using data-driven processes and historical trends as well as predictive analytics to 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, you know, that process is well underway.

And, you know, Eric, I'd add that, you know, 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 relative to 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 across the entire portfolio with not only our same store, but our non-same store portfolio.

Got it. That's helpful. And I think in the press release, you characterize things as sort of stabilizing. I don't know if you feel like, you know, 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 this sort of the trends that you've seen recently in October over the last couple of months, if 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, um, sort of a little bit more of a muted rebound.

Yeah, 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 24. 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, you know, we're, we're, we're stable, but we're rolling at a healthy clip as well. And, you know, just highlighting that the West coast again with growth in the two to 4%, you know, same store revenue growth range and good fundamentals. So some of the markets aren't quite there yet. Um, but you know, we're, we're seeing a good and healthy customer and, and, uh, overall operational performance in, in many of the markets we operate today.

Got it. That's helpful. Thank you.

Thank you. Our next question comes from Michael Griffith with Evercore. Please proceed with your question.

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 that existing customer, which it seems to remain sticky. But, you know, as these move-in rents, you know, 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, you know, new move-in rents?

Yeah, I'd say taking a step back, you know, 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, yeah, 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. We continue to make, you know, investments through our platform to drive revenue in a competitive environment. And, you know, I would point you now to one particular metric.

Thanks, Tom. Appreciate the context there. And then maybe just on the revised guidance, it seems like you're trending, you know, in the more favorable range both on, you know, expenses being toward the low end and NOI being toward the high end, at least on a year-to-date basis. 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?

Yeah, sure. You know, every quarter's 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 whether 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.

Great. That's it for me. Thanks for the time.

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

Yes, thanks a lot. I guess just sticking to that topic about L.A. and the impact, I mean, kind of what are you hearing on the ground, you know, given the price restrictions and the burn-off in Chan? I mean, what are your channel checks kind of telling you at this point?

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

Got it. And then I guess, Tom, on the expense side, when you look at expense growth, kind of 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 12 to 24 months? Thanks.

Yeah, sure. And appreciate the comments. The team is focused around a number of different initiatives to drive operating expense performance while also driving revenue and the overall business. And, you know, the A couple that we continuously highlight and we're 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 born 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 we'll 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.

Thank you. Thank you.

Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Hi there. I was wondering if you could talk through your current expectations for supply and maybe how you expect the next 12 months will compare to the last 12 months and what's driving that?

Yeah, 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. You know, there are, you know, here and there are 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 in the next couple of years.

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

Sure. I'll take the first part and I'll have Tom talk to the stabilization, which is quite good as well. 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, etc. 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 nationally. So our confidence and our commitment to the business has never been higher than 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 tied to that, which continue to be quite good.

Yeah, 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 SUP 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.

Thanks.

Thank you. Our next question comes from Ron.

camden with morgan stanley please proceed with your question hey just two quick ones um i look the guy i think this came up earlier but the guidance sort of assumes a little bit of decel 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 the web search data or anything like that are you seeing anything from that standpoint that's showing that demand may be slowing or uh you know how do you sort of think about that thanks

Yeah, thanks, Ron. Nothing implied there as it relates to demand overall. We continue to see a 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 had 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, you know, 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.

Great. And then, yeah, 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. Sure.

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, 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 a 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, the 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 on in that process, but it's bearing some good fruit. Thanks so much. You bet.

Our next question is from Eric Lubchow with Wells Fargo. Please proceed with your question.

Great. Appreciate the question. So maybe could you update us a little bit on...

Operating trends through through October in terms of occupancy moving race anything you're seeing as we kind of move into the fourth quarter here Yeah, sure Happy to do that I'll provide a couple elements and as I spoke earlier, you know focus continues to be on revenue overall But specifically, you know talking about new customer activity I'd maybe frame it as if you look at the third quarter as 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, you know, a little bit different in terms of volume versus rate, et cetera. 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. I'd point you to move-in rates that, again, are driving that volume, 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 we feel like we're in a very good place from an occupancy standpoint to drive revenue in a steady, stabilizing, and hopefully improving operating fundamental picture.

Great. And maybe just to follow up, I know you touched on this a little bit, but the LA rent restriction headwinds, you would guide it to about 100 basis point headwinds. 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.

Yeah, sure. So two components there. One, Related to L.A. 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, you know, close to down 3% for the year. We think based on where we are right now, it's probably going to be down in the ones, 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 start of January. So no change there, but we're certainly still in an environment with pricing restrictions associated with those state of emergencies.

Thank you.

Our next question comes from Spencer Alloway with Green Street Advisors. Please proceed with your question.

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 with the increasing prevalence and uses for AI, do you think that 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 algorithms?

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 OPEC side driving that margin performance. And so, you know, consistently getting towards, you know, 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. We drive our operating platform.

Okay, great. Thank you for the color.

Our next question comes from Todd Thomas with KeyBank Capital Markets. Please proceed with your question.

Hi, thanks. First, two quick follow-ups on acquisitions, you know, your volumes approaching a billion dollars 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? I'm just curious what the appetite's like today to do something more sizable or strategic.

Yeah, so a number of components to that question. So Joe and I will probably tag team this one. But I think we have seen an 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 acquisitions 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.

Yeah, Todd, I just add the balance sheet is well positioned to serve us 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, et cetera, allow us to integrate these assets incredibly smoothly in, you know, in many cases within a 24-hour timeframe from, you know, one platform to another. So we've got the technique, the skill, and now time and again the experience, you know, to continue to aggregate these assets. And we are going to continue to look for in and all ways to do just that.

okay um that's helpful and then and joe just sticking your comments around technology so you mentioned a number of things um you know employee efficiencies the rental process um generative ai search you know clearly expenses are an area where you've seen technology have a big impact um you know is there is there a lot more room there or do you feel you've sort of rung out a lot of the efficiencies at this point with maybe more benefits accruing toward acquisitions mainly going forward? And what do you think might have the biggest impact in the next three to five years as you look out?

It's top to bottom, Todd, and continues from an investment standpoint. We are making a whole host of priorities around impacts to the business. It 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 in 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. With, you know, 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 and that continues to serve us quite well, and we're very committed to that.

What kind of margin upside do you think is ultimately achievable?

Well, we'll see how that plays, but we're confident we're not done.

Okay.

Thank you.

Thank you.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Juan Santabria with BMO Capital Markets. Please proceed with your question.

Hi. Thanks for the time. Just wanted to follow up on LA 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 30% 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?

Yeah, and I think, you know, giving you the guidepost as it relates to the markets should be helpful. You know, I think the fourth quarter obviously implied number associated with that, as I've noted a couple times, will be holding us back a little bit further as it relates to the impact to the overall same store. You know, the demand associated with a new customer as well as, you know, 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 and nationally, less vacate activity also helpful. So occupancy is up a little bit in Los Angeles. And so a lot of the same trends that 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.

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 a year to date?

Yeah, no, the yields that we've been targeting a pretty consistent what we highlighted last quarter. So we're likely to achieve going in yields in the kind of five and a quarter zip code on a mix of stabilized and unstabilized activities year to date. And, you know, 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.

Thank you.

Next one. Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.

Good afternoon. Thanks a lot for taking my questions. Thinking about 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-on-a-wide guidance move higher by 10 million. Does that reflect

improve the performance of the previously owned properties or does that reflect the newly acquired ones thanks 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 have 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 types 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.

Yeah, the second part of your question just related to non-seam 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 and what we had closed under contract. So that combination leads to better outlook for non-seam 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.

Thanks for that. And my follow-up question, you know, your marketing spend is down year over year. I believe your promotions give in. 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.

Yeah, 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, increasing 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 and that's the focus of the team and we'll continue to to use all those tools in order to to focus on that revenue metric thank you very much good luck in the fourth quarter thanks michael our next question is from mike mueller with jp morgan please proceed with your question

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

Yeah, Michael, I mean, I spoke earlier to the fact that many of those markets I highlighted are performing well. uh steady uh strong growth uh from from many of them and associated with that you have better move-in trends but you also have better trends from existing customers and and good behavior amongst the existing customer base so uh it's a combination of things as always uh but but no question um seeing some good strength across many of our markets today got it okay and as a quick follow-up um and i apologize if i missed this one um

Any changes in terms of the pushback from customers on ECRI or ECRI levels in general?

No, the 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 rent with us.

Thank you.

Our next question comes from Brandon Lynch with Barclays Bank. Please proceed with your question.

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 A-B testing, but any details on your approach to overage or underage of labor would be helpful.

Yeah, Brennan. We're on a multi-year 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 You know customer interaction and you know customer service as a guidepost to see and understand to your point how far to go. The components of that also though include on a per market basis, and even a sub market 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 become more and more effective. So those kinds of tools are the tools that we invest in predictably. 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-in-day environment. It's also 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 we've got more to do, and we're excited about it. 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? Yeah, sure.

I mean, I think housing is a component of our demand. It's been relatively stable over the last couple years as housing transaction volumes have been relatively stable after the step lower several years ago. You know, clearly interest rates are a touch lower, mortgage rates are a touch lower. That 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 shift currently in 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 and housing may be a touch better than that. 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.

Thanks, Rob, and thanks to all of you for joining us today. Have a great day. This concludes today's conference.

You may disconnect your lines at this time, and we thank you for your participation.